Doublemeat Palace is considering a new plant for a temporary customer, and its finance department has determined the following characteristics. The company owns much of the plant and equipment to be used for the product. This equipment was originally purchased for $ 90,000; however, if the project is not undertaken, this equipment will be sold for $ 50,000 after taxes; in addition, if the project is not accepted, the plant used for the project could be sold for $ 105,000 after taxes— the plant originally cost $ 40,000. The rest of the equipment will need to be purchased at a cost of $ 150,000. This new equipment will be depreciated by the straight-line method over the project’s 3- year life, after which it will have zero salvage value. No change in net operating working capital would be required, and management expects revenues resulting from this new project to be $ 234,000 per year for 3 years, while increased operating expenses, excluding depreciation, are expected to be $ 82,000 per year over the project’s 3- year life. The average tax rate is 25 percent and the marginal tax rate is 30 percent. The required rate of return for this project is 8 percent. What is the project’s
Answer to relevant QuestionsThe Shome Corporation, a firm in the 34 percent marginal tax bracket with a 15 percent required rate of return or cost of capital, is considering a new project. The project involves the introduction of a new product. This ...Spartan Stores is expanding operations with the introduction of a new distribution center. Not only will sales increase but investment in inventory will de-cline due to increased efficiencies in getting inventory to ...Distinguish between business risk and financial risk. What gives rise to, or causes, each type of risk? You have developed the following income statement for the Hugo Boss Corporation. It represents the most recent year’s operations, which ended yesterday. Your supervisor in the controller’s office has just handed you a ...Camping USA Inc. has been operating for only 2 years in the outskirts of Albuquerque, New Mexico, and is a new manufacturer of a top- of- the- line camping tent. You are starting an internship as assistant to the chief ...
Post your question