You work for Apple. After toiling away on $10.1 million worth of prototypes, you have finally...
Fantastic news! We've Found the answer you've been seeking!
Question:
Transcribed Image Text:
You work for Apple. After toiling away on $10.1 million worth of prototypes, you have finally produced your answer to Google Glasses: iGlasses (the name alone is genius). iGlasses will instantly transport the wearer into the world as Apple wants him to experience it: iTunes with the wink of an eye and apps that can be activated just by looking at them. You think that these will sell for five years until the next big thing comes along (or until users are unable to interact with actual human beings). Revenues are projected to be $444.2 million per year along with expenses of $355 million. You will need to spend $55.5 million immediately on additional equipment that will be depreciated using the 5-year MACRS schedule. Additionally, you will use some fully depreciated existing equipment that has a market value of $9.1 million. As the iGlasses are an outcome of the R&D center, Apple plans to charge $5.2 million of the annual costs of the center to the iGlasses product for four years. Finally, Apple's working capital levels will increase from their current level of $119.2 million to $140.2 million immediately. They will remain at the elevated level until year 4, when they will return to $119.2 million. Apple's discount rate for this project is 15.5% and its tax rate is 21%. Calculate the free cash flows and determine the NPV of this project. (Note: Assume that the opportunity cost must be after-tax and the equipment is put into use in year 1.) Calculate the free cash flows below: (Round to two decimal places.) Year 4 Year 5 Year 6 $ EA 0.00 0.00 0.00 ($ million) Year 0 Year 1 Year 2 Year 3 Sales 0.00 $ 69 - Cost of Goods Sold 0.00 0.00 $ 0.00 0.00 0.00 EA GA Gross Profit - Annual Charge - Depreciation EBIT - Tax Incremental Earnings + Depreciation -Incremental Working Capital - Capital Investment - Opportunity Cost 69 69 69 69 69 69 SA EA 0.00 $ EA 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 EA $ EA The NPV of the project is $ million. (Round to two decimal places.) Incremental Free Cash Flow You work for Apple. After toiling away on $10.1 million worth of prototypes, you have finally produced your answer to Google Glasses: iGlasses (the name alone is genius). iGlasses will instantly transport the wearer into the world as Apple wants him to experience it: iTunes with the wink of an eye and apps that can be activated just by looking at them. You think that these will sell for five years until the next big thing comes along (or until users are unable to interact with actual human beings). Revenues are projected to be $444.2 million per year along with expenses of $355 million. You will need to spend $55.5 million immediately on additional equipment that will be depreciated using the 5-year MACRS schedule. Additionally, you will use some fully depreciated existing equipment that has a market value of $9.1 million. As the iGlasses are an outcome of the R&D center, Apple plans to charge $5.2 million of the annual costs of the center to the iGlasses product for four years. Finally, Apple's working capital levels will increase from their current level of $119.2 million to $140.2 million immediately. They will remain at the elevated level until year 4, when they will return to $119.2 million. Apple's discount rate for this project is 15.5% and its tax rate is 21%. Calculate the free cash flows and determine the NPV of this project. (Note: Assume that the opportunity cost must be after-tax and the equipment is put into use in year 1.) Calculate the free cash flows below: (Round to two decimal places.) Year 4 Year 5 Year 6 $ EA 0.00 0.00 0.00 ($ million) Year 0 Year 1 Year 2 Year 3 Sales 0.00 $ 69 - Cost of Goods Sold 0.00 0.00 $ 0.00 0.00 0.00 EA GA Gross Profit - Annual Charge - Depreciation EBIT - Tax Incremental Earnings + Depreciation -Incremental Working Capital - Capital Investment - Opportunity Cost 69 69 69 69 69 69 SA EA 0.00 $ EA 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 EA $ EA The NPV of the project is $ million. (Round to two decimal places.) Incremental Free Cash Flow
Expert Answer:
Posted Date:
Students also viewed these finance questions
-
Help design a software development project design, step-by-step, detailing how to do this project from beginning to end. Imagine that you are a consultant or project owner and are trying to make the...
-
Research the policies and procedures in health organisations which relate to documentation in client charts. Read the following link as a guideline or you may use your workplace policies and...
-
Compute the net pay for Evelyn Khan and Margaret Rheinhart. Assume that they are paid a $2,980 salary biweekly, subject to federal income tax (use the wage-bracket method) in Appendix C and FICA...
-
Another equation that has been used to model population growth is the Gompertz equation: dy dt ky In(K/y) , where k and K are positive constants. For each y in 0 < y K, show that dy/ dt is never less...
-
The following balance sheet items, listed in alphabetical order, are available from the records of Ruth Corporation at December 31, 2010: Required 1. Prepare in good form a classified balance sheet...
-
Why is there litter along most major roads but rarely in peoples gardens?
-
Payroll costs and bonus Marsha's Ceramics has two highly-skilled employees who design and produce exquisite ceramic pieces. Each earns a salary of $1,495 per month. Each also gets 1 /2 month of paid...
-
The Schonlind Company has gathered information regarding past sales: Year Sales 1999 ........... 300,000 2000 ........... 225,000 2001 ........... 325,000 2002 ........... 650,000 2003 ..............
-
Dear Tutors, Could you please upload spreasheets on how you arrived to your answers for the below questions on Timken Case (attached). 1. What is your stand-alone valuation of Torrington? Explain and...
-
Assume that graduation is here and you've been offered a job with the choice of two cities. The job in both cities would be the same with the same salary (given cost of living adjustments). Im adding...
-
Over the past few decades, hedge funds have become among the most controversial and largest investment vehicles on Wall Street. Critics of hedge funds argue that their high-risk investment strategies...
-
In a test for the difference between two proportions, the sample sizes were n1 = 68 and n2 = 76, and the numbers of events were x1 = 41 and x2 = 25. A test is made of the hypotheses H0: p1 = p2...
-
In a test for the difference between two proportions, the sample sizes were n1 = 120 and n2 = 85, and the numbers of events were x1 = 55 and x2 = 45. A test is made of the hypotheses H0: p1 = p2...
-
To use the methods of this section to test a hypothesis about the difference between two means, the population standard deviations must be known. In Exercises 5 and 6, determine whether the statement...
-
Level 95%: x1 = 42, n1 = 80, x2 = 18, n2 = 60 In Exercises 712, construct the confidence interval for the difference p1 p2 for the given level and values of x1, n1, x2, and n2.
-
a. Question 1 A Treasury bond has exactly 3 years to maturity. The coupon rate on this bond is 4% per year and coupons are paid annually. The face value of the Treasury Bond is 100 and the current...
-
The Taylor's series expansion for cosx about x = 0 is given by: where x is in radians. Write a user-defined function that determines cosx using Taylor's series expansion. For function name and...
-
Purchase and Disposal of Operating Asset and Effects on Statement of Cash Flows On January 1, 2008, Castlewood Company purchased some machinery for its production line for $104,000. Using an...
-
Depreciation as a Tax Shield The term tax shield refers to the amount of income tax saved by deducting depreciation for income tax purposes. Assume that Rummy Company is considering the purchase of...
-
Lump-Sum Purchase of Assets and Subsequent Events Dixon Manufacturing purchased, for cash, three large pieces of equipment. Based on recent sales of similar equipment, the fair market values are as...
Study smarter with the SolutionInn App