Bundle: Financial Management: Theory and Practice, Loose-leaf Version, 15th + Aplia, 1 term Printed Access Card
15th Edition
ISBN: 9781337130295
Author: Eugene F. Brigham, Michael C. Ehrhardt
Publisher: Cengage Learning
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Chapter 11, Problem 5MC
Summary Introduction
Case summary:
Company S desires to add a new line to its product mix. For this purpose the analysis of capital budgeting was conducted by person S an MBA graduate. The invoice price of the machinery is $200,000 approximately and $10,000 shipping charges are required. Installation charges are $30,000. The machinery has a 4 years’ life with a salvage value of $25000.
The new line leads to increase the sales of 1,250 units each year of 4 years and cost of $100 per unit in first year. The units are sold for $200 in the 1st year.
It results to an increase in company’s net working capital by 12% value of sales. Company’s tax rate is 40% and risk adjusted cost of capital or weighted average cost of capital for an average project is 10%.
Characters in the case:
- Company S
- Person S
To compute: Required net working capital and cash flow due to investments in net working capital
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Chapter 11 Solutions
Bundle: Financial Management: Theory and Practice, Loose-leaf Version, 15th + Aplia, 1 term Printed Access Card
Ch. 11 - Why is it true, in general, that a failure to...Ch. 11 - Prob. 4QCh. 11 - Explain how net operating working capital is...Ch. 11 - How do simulation analysis and scenario analysis...Ch. 11 - Why are interest charges not deducted when a...Ch. 11 - Most firms generate cash inflows every day, not...Ch. 11 - What are some differences in the analysis for a...Ch. 11 - Distinguish among beta (or market) risk,...Ch. 11 - Prob. 11QCh. 11 - Prob. 1P
Ch. 11 - Prob. 2PCh. 11 - Prob. 3PCh. 11 - Prob. 4PCh. 11 - Prob. 5PCh. 11 - Prob. 6PCh. 11 - Prob. 7PCh. 11 - Prob. 10PCh. 11 - Shao Industries is considering a proposed project...Ch. 11 - The Everly Equipment Company’s flange-lipping...Ch. 11 - The Bartram-Pulley Company (BPC) must decide...Ch. 11 - The Yoran Yacht Company (YYC), a prominent...Ch. 11 - Prob. 1MCCh. 11 - Prob. 2MCCh. 11 - Prob. 3MCCh. 11 - Prob. 4MCCh. 11 - Prob. 5MCCh. 11 - Prob. 6MCCh. 11 - Prob. 7MCCh. 11 - Prob. 8MCCh. 11 - Prob. 14MC
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- Estimate the required net operating working capital (NOWC) for each year and the cash flow due to changes in NOWC.arrow_forwardYou have been depositing money into an account yearly based on the following investment amounts, rates and times, what is the value of that investment account at the end of that period?arrow_forwardThe expected period of time that will elapse between the date of a capital investment and thecomplete recovery of the amount of cash investedis called: A.The average rate of return period B.The cash payback period C.The net present value period D.The internal rate of return periodarrow_forward
- Explain how to find the value of a capital budgeting project given its cost, its expected annualnet cash flows, its life, and its cost of capital.arrow_forwardShort-term investment and long-term investment will be recorded in what type of financial statement to evaluate the actual inflow and outflow of the money.arrow_forwardDistinguish between annual income in the presence of depreciation and annual operating cash flow?arrow_forward
- Explain why net operating working capital is included in a capital budgeting analysis andhow it is recovered at the end of a project’s life.arrow_forwardAre the revenues from the goods and services produced in the new facility, the expected future cash inflows in the investment category?arrow_forwardMachinery purchases, initial investments, premium payments, or extra payments after the starting year, are considered with values of initial capital?arrow_forward
- Describe the annual cash flow analysis, which presents measures of investment worth based on yield?arrow_forwardWhich of the following items are required to analyze a capital expenditure? (Select all that apply.) - EBIT - the initial cash outlay - evaluation of the future cash flows - the projected future cash flows from the investmentarrow_forwardIn the initial investment of a project you must include the working capital.arrow_forward
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