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Layla's Distribution Co. is considering a project which will require the purchase of a new machine in $1.8 million. The machine will be depreciated straight-line to a zero book value over the 5-year life. Layla's expects to sell the machine at the end of the project for 10 percent of its initial cost. Annual sales from this project are estimated at $1.3 million. Operating costs are estimated at $0.5 million per year. Layla's requires inventory equal to 20 percent of the sales, account receivable equal to 25% of the sales, and account payable equal to 15% of the sales over the life of the project. All of the net working capital will be recouped at the end of the project. The firm does not have debt and desires a minimal 15% rate of return on this project. The tax rate is 34%. A. What are the changes in NWC at the start and at the end of the project? B. What is the NPV of this project? Layla's Distribution Co. is considering a project which will require the purchase of a new machine in $1.8 million. The machine will be depreciated straight-line to a zero book value over the 5-year life. Layla's expects to sell the machine at the end of the project for 10 percent of its initial cost. Annual sales from this project are estimated at $1.3 million. Operating costs are estimated at $0.5 million per year. Layla's requires inventory equal to 20 percent of the sales, account receivable equal to 25% of the sales, and account payable equal to 15% of the sales over the life of the project. All of the net working capital will be recouped at the end of the project. The firm does not have debt and desires a minimal 15% rate of return on this project. The tax rate is 34%. A. What are the changes in NWC at the start and at the end of the project? B. What is the NPV of this project? Layla's Distribution Co. is considering a project which will require the purchase of a new machine in $1.8 million. The machine will be depreciated straight-line to a zero book value over the 5-year life. Layla's expects to sell the machine at the end of the project for 10 percent of its initial cost. Annual sales from this project are estimated at $1.3 million. Operating costs are estimated at $0.5 million per year. Layla's requires inventory equal to 20 percent of the sales, account receivable equal to 25% of the sales, and account payable equal to 15% of the sales over the life of the project. All of the net working capital will be recouped at the end of the project. The firm does not have debt and desires a minimal 15% rate of return on this project. The tax rate is 34%. A. What are the changes in NWC at the start and at the end of the project? B. What is the NPV of this project? Layla's Distribution Co. is considering a project which will require the purchase of a new machine in $1.8 million. The machine will be depreciated straight-line to a zero book value over the 5-year life. Layla's expects to sell the machine at the end of the project for 10 percent of its initial cost. Annual sales from this project are estimated at $1.3 million. Operating costs are estimated at $0.5 million per year. Layla's requires inventory equal to 20 percent of the sales, account receivable equal to 25% of the sales, and account payable equal to 15% of the sales over the life of the project. All of the net working capital will be recouped at the end of the project. The firm does not have debt and desires a minimal 15% rate of return on this project. The tax rate is 34%. A. What are the changes in NWC at the start and at the end of the project? B. What is the NPV of this project?
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Answer rating: 100% (QA)
aN WC Sales NW C Account s Rece ivable AR Account s Pay able AP N WC at start of pro... View the full answer
Related Book For
Statistics for Business and Economics
ISBN: 978-0134506593
13th edition
Authors: James T. McClave, P. George Benson, Terry Sincich
Posted Date:
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