ABC Manufacturing Inc, a firm bases in california has spent $750000 to develop and start a new,
Question:
ABC Manufacturing Inc, a firm bases in california has spent $750000 to develop and start a new, effecient vaccum cleaner. The firm has spent $250000 on the market research to get the following sales. Year 1 - 60,000 units
Year 2 - 100,000 units
Year 3 - 150,000 units
Year 4 - 70,000 units
Year 5 - 50,000 units
ABC Manufacturing Inc., a firm based in California has spent $750,000 to develop and start manufacturing a new, efficient vacuum cleaner. The firm has spent $250,000 on market research to get the following expected sales:
The variable costs of manufacturing are $175 per unit in year 1 and the fixed costs of operations are $3.5 million a year. The sales price per unit will be $475 per unit in year 1. Sales price, variable costs, and fixed costs are estimated to increase by 5% per year (rounded off to the nearest whole dollar). The necessary equipment can be purchased for $28 million, and shipping and installation of equipment will cost $2 million. Salvage value at the end of 5 years is believed to be $5 million. Initial net working capital is $4 million to start - and will be 20% of sales for each year from years 2 through 5, to be budgeted for at the end of the previous year. ABC has a 35% corporate tax rate and a 12% required rate of return.
Calculate the 5-year CFs of the above project and say whether the firm should invest in it or not.
Managerial accounting
ISBN: 978-0471467854
1st edition
Authors: ramji balakrishnan, k. s i varamakrishnan, Geoffrey b. sprin