Better Mousetraps has developed a new trap. It can go into production for an initial investment...
Fantastic news! We've Found the answer you've been seeking!
Question:
Transcribed Image Text:
Better Mousetraps has developed a new trap. It can go into production for an initial investment in equipment of $5.4 million. The equipment will be depreciated straight-line over 6 years, but, in fact, it can be sold after 6 years for $527,000. The firm believes that working capital at each date must be maintained at a level of 10% of next year's forecast sales. The firm estimates production costs equal to $1.10 per trap and believes that the traps can be sold for $5 each. Sales forecasts are given in the following table. The project will come to an end in 6 years, when the trap becomes technologically obsolete. The firm's tax bracket is 40%, and the required rate of return on the project is 9%. Year: 0 1 2 3 4 5 6 Thereafter Sales (millions of traps) 0 0.5 0.7 0.9 0.9 0.6 0.4 0 Suppose the firm can cut its requirements for working capital in half by using better inventory control systems. By how much will this increase project NPV? (Do not round your intermediate calculations. Enter your answer in millions rounded to 4 decimal places.) × Answer is complete but not entirely correct. Change in NPV 3.6143 million Canyon Tours showed the following components of working capital last year: Accounts receivable Inventory Accounts payable Beginning of Year $ 28,000 14,000 16,500 End of Year $ 25,000 16,500 20,500 a. What was the change in net working capital during the year? (A negative amount should be indicated by a minus sign.) × Answer is complete but not entirely correct. Change in net working capital $ 5,000 × b. If sales were $38,000 and costs were $26,000, what was cash flow for the year? Ignore taxes. × Answer is complete but not entirely correct. Cash flow $ 29,000 × Bottoms Up Diaper Service is considering the purchase of a new industrial washer. It can purchase the washer for $3,300 and sell its old washer for $900. The new washer will last for 6 years and save $700 a year in expenses. The opportunity cost of capital is 11%, and the firm's tax rate is 21%. a. If the firm uses straight-line depreciation over a 6-year life, what are the cash flows of the project in years 0 to 6? The new washer will have zero salvage value after 6 years, and the old washer is fully depreciated. (Negative amounts should be indicated by a minus sign.) b. What is project NPV? (Do not round intermediate calculations. Round your answer to 2 decimal places.) c. What is NPV if the firm investment is entitled to immediate 100% bonus depreciation? (Do not round intermediate calculations. Round your answer to 2 decimal places.) > Answer is complete but not entirely correct. Annual operating cash flow in year 0 $ (2,368) a. Annual operating cash flow in years 1 to 6 $ 579 X b. NPV 229.35 x C. NPV 336.31 X Better Mousetraps has developed a new trap. It can go into production for an initial investment in equipment of $5.4 million. The equipment will be depreciated straight-line over 6 years, but, in fact, it can be sold after 6 years for $527,000. The firm believes that working capital at each date must be maintained at a level of 10% of next year's forecast sales. The firm estimates production costs equal to $1.10 per trap and believes that the traps can be sold for $5 each. Sales forecasts are given in the following table. The project will come to an end in 6 years, when the trap becomes technologically obsolete. The firm's tax bracket is 40%, and the required rate of return on the project is 9%. Year: 0 1 2 3 4 5 6 Thereafter Sales (millions of traps) 0 0.5 0.7 0.9 0.9 0.6 0.4 0 Suppose the firm can cut its requirements for working capital in half by using better inventory control systems. By how much will this increase project NPV? (Do not round your intermediate calculations. Enter your answer in millions rounded to 4 decimal places.) × Answer is complete but not entirely correct. Change in NPV 3.6143 million Canyon Tours showed the following components of working capital last year: Accounts receivable Inventory Accounts payable Beginning of Year $ 28,000 14,000 16,500 End of Year $ 25,000 16,500 20,500 a. What was the change in net working capital during the year? (A negative amount should be indicated by a minus sign.) × Answer is complete but not entirely correct. Change in net working capital $ 5,000 × b. If sales were $38,000 and costs were $26,000, what was cash flow for the year? Ignore taxes. × Answer is complete but not entirely correct. Cash flow $ 29,000 × Bottoms Up Diaper Service is considering the purchase of a new industrial washer. It can purchase the washer for $3,300 and sell its old washer for $900. The new washer will last for 6 years and save $700 a year in expenses. The opportunity cost of capital is 11%, and the firm's tax rate is 21%. a. If the firm uses straight-line depreciation over a 6-year life, what are the cash flows of the project in years 0 to 6? The new washer will have zero salvage value after 6 years, and the old washer is fully depreciated. (Negative amounts should be indicated by a minus sign.) b. What is project NPV? (Do not round intermediate calculations. Round your answer to 2 decimal places.) c. What is NPV if the firm investment is entitled to immediate 100% bonus depreciation? (Do not round intermediate calculations. Round your answer to 2 decimal places.) > Answer is complete but not entirely correct. Annual operating cash flow in year 0 $ (2,368) a. Annual operating cash flow in years 1 to 6 $ 579 X b. NPV 229.35 x C. NPV 336.31 X
Expert Answer:
Answer rating: 100% (QA)
a Canyon Tours showed the following components of working capital last year Beginning of Year End of ... View the full answer
Related Book For
Fundamentals of Corporate Finance
ISBN: 978-1260566093
10th edition
Authors: Richard Brealey, Stewart Myers, Alan Marcus
Posted Date:
Students also viewed these finance questions
-
Write an equation for the function graphed below y = $ -4-3-2 -1 54 +++ Submit Question 5. 4 3- 2 + -1 ~ M -3 -4 Question Help: Video 4 Jump to Answer O Q
-
Explain the STRUCTURING REAL ESTATE FINANCING INSTRUMENTS
-
On the income statement for the year ending December 31, Y1, the accountant for ABC calculated operating income before taxes of $300,000. This $300,000 did not include the effect of any of the...
-
Outline a potentially viable and politically acceptable solution to the issues related to providing healthcare for the aged.
-
The chief administrator for a group of not-for profit early education centers and outreach facilities has hired you to conduct an audit. A mission of the organization is to provide child care and...
-
Explain how the control variate technique is implemented.
-
Paul Sabin organized Sabin Electronics 10 years ago to produce and sell several electronic devices on which he had secured patents. Although the company has been fairly profitable, it is now...
-
Draw a diagram with the wage-setting relation and price-setting relation. Label your wage-setting curve WS and your price setting line PS. Label the y axis the Real Wage and the x axis the...
-
8.You have been using your aircraft only for your own personal business and pleasure flying. To produce some income, you decide to lease it to an FBO that will use it for student instruction and...
-
PU Ltd contemplates raising $2,000,000 through rights offering. The subscription price is $25 per share. The company has 320,000 shares outstanding. The stock is currently trading at $30 per share....
-
a pension fund manager decides to invest a total of at most 25 million in the US Treasury bonds paying 3% annual interest and in mutual funds paying 5% annual interest. It plans to invest at least 5...
-
3. Company 2 has purchased the following equipment on January 1, 2000. The costs of the assets are listed below. Use this information, to answer the questions below. (20 Points) $250,000 Equipment A...
-
https://www.solutioninn.com/book_solution_view?mid=51840432075&pid=25456284075&bid=38631675 This question with an explanation please. 9-48. The G. Saussy Manufacturing company is putting out 4 new...
-
Given each of the ratios below, state whether the unknown angle will be larger or smaller than the one given. Sin 13 Sin 47 Sin 44 Sin 23 a. b. C. 6 X 10.5 y a Sin 20 Sin 72 5.1
-
2. The demand function for potatoes per month is given by Q = 104 40p + 20pt + 0.01Y, where Q = the quantity of potatoes, p = price of potatoes, pt = price of tomatoes, and Y = income per month. Pt...
-
Stephen Schor, an accountant in New York City, advised his client, Andre Romanelli, Inc., to open an account at J. P. Morgan Chase Bank, N.A., to obtain a favorable interest rate on a line of credit....
-
Look at the following book-value balance sheet for University Products Inc. The preferred stock currently sells for $15 per share and pays a dividend of $2 a share. The common stock sells for $20 per...
-
In October 2017 a pound of apples cost $1.32, while oranges cost $1.59. Three years earlier the price of apples was $1.36 a pound and that of oranges was $1.51 a pound. a. What was the annual...
-
Johnnys Lunches is considering purchasing a new, energy-efficient grill. The grill will cost $40,000 and will be depreciated straight-line over 3 years. It will be sold for scrap metal after 5 years...
-
(a) Determine the coherence area for a mercury arc lamp at 6330 at a distance of \(1 \mathrm{~m}\) from the source. Assume that the output aperture is \(3 \mathrm{~mm}\) and that the beam is...
-
Assume an InGaAsP-InP laser diode that has a resonator cavity equal to \(250 \mu \mathrm{m}\). The peak radiation is at \(\lambda=1.55 \mu \mathrm{m}\). The refractive index of InGaAsP is 4. The...
-
Let \(\boldsymbol{x}\) be a random variable with a standard normal distribution \(\varphi(t)\). Find (a) (b) P{0 x 1.42}. P{-0.73x0}. (c) P{-1.37 x2.01}. (d) (e) (f) (g) P{0.65 x 1.26}....
Study smarter with the SolutionInn App