QUESTION 1: DCF You are the CFO of company ABC, a manufacturer of exercise machines. Your...
Fantastic news! We've Found the answer you've been seeking!
Question:
Transcribed Image Text:
QUESTION 1: DCF You are the CFO of company ABC, a manufacturer of exercise machines. Your firm is considering opening up a new store in Barrie. As part of setting up the store, you invest in furniture and fittings of $30 million. These assets are categorized as a Class 8 asset by the CRA, with a CCA rate of 20%. At the end of the life of the store, the furniture and fittings will have a zero value. The store will have a life of 20 years. It will generate annual sales of 5,000 exercise machines, and the price of each machine is $2,500. You expect the sales to remain constant over the 20 year life of the store. The operating expenses of running the store, including labor and rent, will amount to $6,000,000 per year. In addition, your firm will also need to invest $2 million in additional working capital immediately, and recover it at the end of the investment. Your firm's marginal tax rate is 30 percent. Your cost of capital for evaluating this project is 12%. (a) Calculate the NPV of this project, and conclude on whether you should invest. (b) Suppose that you were able to sell the furniture and fittings at the end of 20 years for an amount that was less than $30 million. Explain how you would adjust your NPV to reflect this. QUESTION 1: DCF You are the CFO of company ABC, a manufacturer of exercise machines. Your firm is considering opening up a new store in Barrie. As part of setting up the store, you invest in furniture and fittings of $30 million. These assets are categorized as a Class 8 asset by the CRA, with a CCA rate of 20%. At the end of the life of the store, the furniture and fittings will have a zero value. The store will have a life of 20 years. It will generate annual sales of 5,000 exercise machines, and the price of each machine is $2,500. You expect the sales to remain constant over the 20 year life of the store. The operating expenses of running the store, including labor and rent, will amount to $6,000,000 per year. In addition, your firm will also need to invest $2 million in additional working capital immediately, and recover it at the end of the investment. Your firm's marginal tax rate is 30 percent. Your cost of capital for evaluating this project is 12%. (a) Calculate the NPV of this project, and conclude on whether you should invest. (b) Suppose that you were able to sell the furniture and fittings at the end of 20 years for an amount that was less than $30 million. Explain how you would adjust your NPV to reflect this.
Expert Answer:
Answer rating: 100% (QA)
DCF Analysis for New Exercise Machine Store ABC Company a Calculating NPV 1 Annual pretax cash flow ... View the full answer
Posted Date:
Students also viewed these finance questions
-
You are the CFO of SlimBody, Inc., a retailer of the exercise machine Slimbody6 and related accessories. Your firm is considering opening up a new store in Los Angeles. The store will have a life of...
-
CoursHeroTranscribedText: A 5-year loan in the amount of $48,000 is to be repaid in equal annual payments. What is the remaining principal balance after the third payment if the interest rate is 5...
-
A small ice block of mass m starts from rest from the top of an inverted bowl in the shape of a hemisphere, as shown in the figure. The hemisphere is fixed to the ground, and the block slides without...
-
Imagine you were designing an ad for a (choose one): car, laptop, health clinic. What would your ad look like if you were targeting: older people? kids? Wealthy people? What celebrity would you...
-
Matching Financial Statement Items to Financial Statement Categories According to its annual report, P&Gs more than 250 brands include Pampers, Tide, Ariel, Always, Whisper, Pantene, Bounty,...
-
A chemical reaction was run 48 times. In each run, different values were chosen for the temperature in degrees Celsius (x1), the concentration of the primary reactant (x2), and the number of hours...
-
Multiple Choice Questions 1. Moore Company carries product A in inventory on December 31, 2007 at its unit cost of $7.50. Because of a sharp decline in demand for the product, the selling price was...
-
Use Marshall and Swift and the format in Sample Appraisal 3 to apply the Cost Approach to 100 Woodbridge Center Drive, Woodbridge,...
-
Three small spheres labeled A, B, and C are evenly arranged in a row from left to right. The charges on the spheres are +91, +51, and -50 C respectively. The distance between A and B is d = 0.32 m...
-
a. Briefly describe how the following data types are represented in Java using a combinations of bits.(As an example, a double precision floating point number is represented using sixty four bits,...
-
This self-assessment consists of 12 questions. For each question, type your brief answer in the space provided. After answering all 12 questions, compare what you wrote with the correct answer along...
-
A sedan weighing 2,000 kg is traveling at 120 kph over a series of sinusoidal bumps having a roughness height of 6 cm and spacing of 3 m. The spring at each wheel has a stiffness of 100,000 N/m. The...
-
wlamart argues that it provides valuable jobs to small communities and should be allowed to grow. critics argue that these jobs are often low paying, with few benefits. what is your position? is a...
-
Joint ventures have significant advantages as well several disadvantages versus a wholly owned subsidiary with regard to investment abroad. Define the two types of investment opportunities and...
-
1. Assume an industry is composed of the following eight firms. Company... Market Share Firm A30 percent Firm B25 percent Firm C15 percent Firm D10 percent Firm E..7 percent Firm F...6 percent Firm...
Study smarter with the SolutionInn App