General Utility Corp. is going to buy a new equipment that falls into the 4-year straight-line...
Fantastic news! We've Found the answer you've been seeking!
Question:
Transcribed Image Text:
General Utility Corp. is going to buy a new equipment that falls into the 4-year straight-line depreciation to $150,000. The equipment costs its current value of $800,000, its installation costs of $50,000, its shipping costs of $50,000, and its research costs of finalizing the equipment type of $100,000. This specific new equipment has been selected since it is expected to generate $400,000 revenue and to increase operating costs by $120,000 in each year for 4 years. The project still requires $80,000 in net working capital at the beginning of the project which will be recovered in the 4th year (the final year). The equipment can be sold in year 4 for $100,000. The firm's tax rate is 40% and its target cost of capital is 10%. Note (if necessary): MACRS 3-year schedule - 33.33% ( Year 1) 44.44% (Year 2) 14.81% (Year 3) 7.41% (Year 4) Answer items (a) through (d). Must show your work. What is the final CFs of the project? a. b. What is the terminal CFs? Show your work below. Time Int Outlay NWC Sales Opt Cost Dep Exp Opt Income (BT) Tax (40%) Opt Income (AT) Dep Exp Recovery Opt CFs AT SV Tot CFs 0 1 Time CFs 2 0 3 1 4 2 3 Type the final answers for d HERE 4 General Utility Corp. is going to buy a new equipment that falls into the 4-year straight-line depreciation to $150,000. The equipment costs its current value of $800,000, its installation costs of $50,000, its shipping costs of $50,000, and its research costs of finalizing the equipment type of $100,000. This specific new equipment has been selected since it is expected to generate $400,000 revenue and to increase operating costs by $120,000 in each year for 4 years. The project still requires $80,000 in net working capital at the beginning of the project which will be recovered in the 4th year (the final year). The equipment can be sold in year 4 for $100,000. The firm's tax rate is 40% and its target cost of capital is 10%. Note (if necessary): MACRS 3-year schedule - 33.33% ( Year 1) 44.44% (Year 2) 14.81% (Year 3) 7.41% (Year 4) Answer items (a) through (d). Must show your work. What is the final CFs of the project? a. b. What is the terminal CFs? Show your work below. Time Int Outlay NWC Sales Opt Cost Dep Exp Opt Income (BT) Tax (40%) Opt Income (AT) Dep Exp Recovery Opt CFs AT SV Tot CFs 0 1 Time CFs 2 0 3 1 4 2 3 Type the final answers for d HERE 4
Expert Answer:
Answer rating: 100% (QA)
To calculate the final cash flows CFs of the project including the terminal CFs we need to calculate the relevant cash flows for each year and then discount them to the present value using the firms t... View the full answer
Related Book For
Fundamentals of Financial Management
ISBN: 978-0324664553
Concise 6th Edition
Authors: Eugene F. Brigham, Joel F. Houston
Posted Date:
Students also viewed these finance questions
-
Managing Scope Changes Case Study Scope changes on a project can occur regardless of how well the project is planned or executed. Scope changes can be the result of something that was omitted during...
-
Read the case study "Southwest Airlines," found in Part 2 of your textbook. Review the "Guide to Case Analysis" found on pp. CA1 - CA11 of your textbook. (This guide follows the last case in the...
-
Evergreen Company was formed in 2013 as a company specialized in producing baby skin-care products. Their dermatologist-developed skin-care products gained popularity and trust, and the company was...
-
A factor used in measuring the loudness sensed by the human ear is (I/I 0 ), 0.3 where I is the intensity of the sound and I 0 is a reference intensity. Evaluate this factor for I = 3.2 10 6 W/m 2...
-
Frog Sound Co. discovered a fraud whereby one of its front office administrative employees used company funds to purchase goods, such as computers, digital cameras, compact disk players, and other...
-
Knudsen diffusion is a phenomenon whereby transport takes place by gas-pore wall collisions rather than by gas-gas collisions. Knudsen diffusion is modeled using concepts similar to the kinetic...
-
As shown in Fig. 2.26. Fig. P7.41, a rectangular barge floats in a stable configuration provided the distance between the center of gravity, \(C G\), of the object (boat and load) and the center of...
-
Son, Inc., and Clef, Inc., are both taxable domestic C corporations. Using the information in the exhibits, enter either the correct amount or holding period (in a number of months) for each item...
-
5 points eBook Print References PEM, Incorporated, is experiencing financial difficulty due to erratic sales of its only product, a high-capacity battery for laptop computers. The company's...
-
Simulation can be used to illustrate a number of results from statistics that are difficult to understand with non-simulation arguments. One is the famous central limit theorem, which says that if...
-
Which of the following statements concerning the finance theory perspective on acquisition is not correct? A Finance theory focuses on shareholders as owners of the compony B. The finance theory...
-
Golf balls have had dimples in them for well over a century after it was first discovered that dimpled balls could be driven farther. Now we know that the dimples trip up the boundary layer and...
-
A sailboard is gliding across a lake at a speed of \(20 \mathrm{mph}(9 \mathrm{~m} / \mathrm{s})\). The sailboard is \(3 \mathrm{~m}\) long, \(0.75 \mathrm{~m}\) wide and represents a smooth, flat...
-
The universal velocity profile in the turbulent core of smooth tubes was written as: \[U^{+}=2.5 \ln y^{+}+5.5\] This relationship holds when the friction Reynolds number is unity....
-
Estimate the power required to overcome drag for a car traveling at \(100 \mathrm{~km} / \mathrm{hr}\). Typical car dimensions are \(3.5 \mathrm{~m} \times 1.7 \mathrm{~m} \times 1.5 \mathrm{~m}\)...
-
Consider a rotating disk suspended in an infinite fluid. One remarkable result for laminar flow situations was that the boundary layer thickness and hence transport coefficients were uniform across...
-
An insurance company has just written single premium contracts that require it to make payments to policyholders of 10,000,000 in five years' ime. The total single premiums paid by policyholders...
-
The figure shows a bolted lap joint that uses SAE grade 8 bolts. The members are made of cold-drawn AISI 1040 steel. Find the safe tensile shear load F that can be applied to this connection if the...
-
Find the future values of these ordinary annuities. Compounding occurs once a year. a. $400 per year for 10 years at 10% b. $200 per year for 5 years at 5% c. $400 per year for 5 years at 0% d....
-
What might SKI do to reduce its cash and securities without harming operations?
-
Kahn Inc. has a target capital structure of 60% common equity and 40% debt to fund its $10 billion in operating assets. Furthermore, Kahn Inc. has a WACC of 13%, a before-tax cost of debt of 10%, and...
-
Consider the heat transfer to a falling film problem of Section 10.3. The mass transfer analog is the dissolution of a solid wall into the falling film. Assuming the solid wall is composed of salt,...
-
Consider a gas metal arc welding electrode as shown in Figure P10.29 where we are consuming the electrode as we weld ( rod velocity \(\left.=v_{o} ight)\). We are interested in the steady-state...
-
In Smoluchowski's Theory of Coagulation we focus on an individual sphere and assume that other like particles diffuse toward it. Once they reach the sphere, they collide and form a new spherical...
Study smarter with the SolutionInn App