Consider a project to supply 119 million Pokemon trading cards per year for the next five...
Fantastic news! We've Found the answer you've been seeking!
Question:
Transcribed Image Text:
Consider a project to supply 119 million Pokemon trading cards per year for the next five year to the Pokemon-R-Us Corporations. You have some undeveloped land available that cost $2,090,000 five years ago. If you sold the land today you would net $2,290,000 after taxes. You anticipate that the land can be sold in five years for $2,490,000 net of taxes. To supply the trading cards you will need to install $5.59 million in new plant and equipment. These fixed assets will be depreciated straight-line to zero over the project's five-year life. The plant and equipment will be sold for $690,000 before taxes at the end of five years. You anticipate an initial investment in net working capital of $790,000, and an additional $69,000 in each subsequent year. You estimate that all net working capital will be recovered at the end of the project. Your variable production costs are 0.69 cents per card (or $0.0069), and you have fixed costs of $930,000 per year. Your tax rate is 35 percent and your required return on this project is 11 percent. What is the lowest that your bid price per card should be? That is, what per-unit price gives the project an NPV = 0? Part A: Start by calculating the operating cash flow that, when received as an annuity for 5 years, would set the NPV =0. (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.) OCF* Part B: Now calculate the minimum bid price. (Do not round intermediate calculations and round your answer to 4 decimal places, e.g., 32.1616.) Bid price Consider a project to supply 119 million Pokemon trading cards per year for the next five year to the Pokemon-R-Us Corporations. You have some undeveloped land available that cost $2,090,000 five years ago. If you sold the land today you would net $2,290,000 after taxes. You anticipate that the land can be sold in five years for $2,490,000 net of taxes. To supply the trading cards you will need to install $5.59 million in new plant and equipment. These fixed assets will be depreciated straight-line to zero over the project's five-year life. The plant and equipment will be sold for $690,000 before taxes at the end of five years. You anticipate an initial investment in net working capital of $790,000, and an additional $69,000 in each subsequent year. You estimate that all net working capital will be recovered at the end of the project. Your variable production costs are 0.69 cents per card (or $0.0069), and you have fixed costs of $930,000 per year. Your tax rate is 35 percent and your required return on this project is 11 percent. What is the lowest that your bid price per card should be? That is, what per-unit price gives the project an NPV = 0? Part A: Start by calculating the operating cash flow that, when received as an annuity for 5 years, would set the NPV =0. (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.) OCF* Part B: Now calculate the minimum bid price. (Do not round intermediate calculations and round your answer to 4 decimal places, e.g., 32.1616.) Bid price
Expert Answer:
Answer rating: 100% (QA)
To calculate the lowest bid price per card that would result in a net present value NPV of zero we need to calculate the operating cash flow OCF that ... View the full answer
Related Book For
Fundamentals of Corporate Finance
ISBN: 978-0077861629
8th Edition
Authors: Stephen A. Ross, Randolph W. Westerfield, Bradford D.Jordan
Posted Date:
Students also viewed these finance questions
-
Jereld Kim founded Kimco LTD, a firm that is currently one of the largest producers of paper and pulp with annual sales of AUD 800 Million. Kim located his first plant in a rural town in Tasmania,...
-
Calculating a Bid Price Consider a project to supply 100 million postage stamps per year to the U.s. Postal Service for the next five years, you have an idle parcel of land available that cost...
-
Read the following facts and then choose the correct option below: X acts as an interpreter in a transaction where Y wants to buy stolen goods from Z. X's conduct is considered to be that of a/an: a....
-
Distinguish between a compression and a rarefaction?
-
Figure P1412C shows two possible locations for a water pump in a piping system that pumps water from the lower tank to the upper tank. Which location is better? Why? FIGURE P1412C Reservoir Valve...
-
A truck carrying chickens is too heavy for a bridge that it needs to cross. The empty truck is within the weight limits; with the chickens it is overweight. It is suggested that if one could get the...
-
Barnes Air Conditioning Inc. has two classes of preferred stock: floating rate preferred stock and straight (normal) preferred stock. Both issues have a par value of $100. The floating-rate preferred...
-
The following information relate to the business of Katwishi as at 31-12-16 K'000 Purchases Sales Returns inwards Returns outwards Debtors 64,700 125,600 6,340 1,900 11,250 Creditors 7,900...
-
The Problem As the options and opportunities for online advertising grow, so does the complexity. Businesses have the ability to market online in a vast number of ways. This can include everything...
-
Make a summary of "Title Eleven called Labor and Social Services Authorities" of the Federal Labor Law
-
To help raise funds for store upgrades estimated to cost $54,000, Sweet Shop Company issued 2,400 common shares for $20 each to existing stockholders. Record the transaction.
-
The following diagram represents the risk/return position of four portfolios of shares. Portfolio D is the market portfolio (the portfolio made up of all risky assets in the market in the same...
-
What is the determinant of this matrix? -1 4 A = 5 62-4 1 -2 -1
-
Describe and differentiate between planning, control, and decision - making functions.
-
Assume that cans of cola are filled such that the actual amounts have a population mean of u 16.00 ounces. A random sample of 49 cans has a mean amount of 16.44 ounces. The distribution of sample...
-
The following data are supplied for the common stocks of Nikola Corporation, Tesla, Inc. and General Motors: Nikola Corp (NKLA) Tesla Inc. (TSLA) Close Price ($) Close Price ($) 67.53 30.00 40.81...
-
Calculating Flotation Costs Southern Alliance Company needs to raise $30 million to start a new project and will raise the money by selling new bonds. The company has a target capital structure of 60...
-
Rock N roll (RNR), Inc predicts that earnings in the coming year will be $75 million. There are 12 million shares, and RNR maintains a debt-equity ratio of 1.5. a. Calculate the maximum investment...
-
Debt versus Equity Flotation Costs why are the costs of selling equity so much larger than the costs of selling debt?
-
Describe the nature and significance of the biology plus approach to establishing parental rights for unwed fathers.
-
Identify and describe the three primary ways of establishing legal parentage.
-
Identify the three parties with the strongest interests in parentage determinations and describe the nature of those interests.
Study smarter with the SolutionInn App