Question: Can someone please explain? I know that IO=NCS+changeinNWC and NWC=current assets-current liabilities Not sure how to figure out which are the assets. Confused by the
Can someone please explain? I know that IO=NCS+changeinNWC and NWC=current assets-current liabilities
Not sure how to figure out which are the assets. Confused by the entire problem.
Fast corp. currently has one product, low-priced hoses. Fast Corp. has decided to sell a new line of medium-priced hoses. The building and machinery for producing this new line is estimated to cost $12,000,000 and it will be depreciated down to zero over 10 years using straight-line depreciation. Also, an investment today on working capital in the amount of $2,000,000 is needed. The working capital will be recovered at the end of the project. Sales for the new line of hoses are estimated at $30 million a year. Annual variable costs are 60% of sales. The project is expected to last 5 years. In addition to the production variable costs, the fixed costs each year will be $3,000,000. The company has spent $1,000,000 in a marketing study that determined the company will lose $12 million in sales a year of its existing low-priced hoses. The production variable cost of these sales is $10 million a year. It is expected that at the end of the project, the building and machinery can be solod for $2,000,000. The tax rate is 30 percent and the cost of capital is 14% a. What is the initial outlay (IO) for this project? The Initial Outlay is $\ (Round your answer to the narest dollar-no decimals-and commas are required to separate thousands and millions. Use negative sign for negative cash flows - do not use parenthesis) b. What is the operating cash flows (OCF) for each of the years for this project? The OCF for each year of the project are $. (Round your answer to the nearest dollar- no decimals- and commas are required to separate thousands and millions. Use negative sign for negative cash flows - do not use parenthesis) c. What is the termination value (TV) cash flow (aka recovery cost or after-tax salvage value, or liquidation value of the assets) at the end of the project? The termination value at the end of the project is S(Round your answer to the nearest dollar -no decimals - and commas are required to separate thousands and millions. Use negative sign for negative cash flows - do not use parenthesis) d. What is the NPV of this project? The NPV of this project is(Round your answer to the nearest dollar and use commas to separate thousands and millions. Use negative sign for negative cash flows - do not use parenthesis)
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