Assume it is 31/12/2010. Hathaway Browne, the CFO of Holt Industries, was evaluating a new investment...
Fantastic news! We've Found the answer you've been seeking!
Question:
Transcribed Image Text:
Assume it is 31/12/2010. Hathaway Browne, the CFO of Holt Industries, was evaluating a new investment project for a major new product line. It was expected to significantly impact the company's sales, profits, and cash flows. This new product line had been developing for the past nine months, and $609,411 had already been spent taking the product from the concept stage to the point where working prototypes were being built and tested. • The project sponsors were confident it would generate sales of at least $23 million in 2011 and $35 million in both 2012 and 2013 before falling to $15 million in 2014 and $7 million in 2015. • Implementing this new product line would also require large investments and expenditures by the company. New plant and equipment costing $9 million must be purchased and this specific equipment would be depreciated straight line to a zero-book value over its five-year life. This depreciation expense flowed into the cost of goods sold and was already included in the estimate that the cost of goods sold would be 71% of sales. Holt expected that net working capital would be 15% of sales. • The initial investment in equipment and net working capital would occur in 2010 (i.e., on 31/12/2010). In subsequent years the net working capital would increase and then decrease as sales of the new product line rose and then fell. As a practical matter, the buildup in working capital would have to be made at the beginning of the sales year in question (or, equivalently, by the end of the previous year). Selling, general and administrative expenses are expected to be 9% of sales. In addition, the marketing manager also planned a one-time $326,013 advertising and promotion campaign simultaneous with the product launch in 2011. • The plant would be built on land that the company already owned. The land could be rented out for a rental income of $0.59 million yearly (pre-tax) if the company did not undertake the project. The rentals would be paid at the end of each year. • The project would shut down at the end of 2015, and the plant would be sold for $1 million. The company faces a 41% tax rate. The appropriate discount rate for this project is 11%. The company has other profitable operations. What is the NPV of this project (in millions of $)? Input your response in millions of $s rounded to two decimal places (without the $ sign). Assume it is 31/12/2010. Hathaway Browne, the CFO of Holt Industries, was evaluating a new investment project for a major new product line. It was expected to significantly impact the company's sales, profits, and cash flows. This new product line had been developing for the past nine months, and $609,411 had already been spent taking the product from the concept stage to the point where working prototypes were being built and tested. • The project sponsors were confident it would generate sales of at least $23 million in 2011 and $35 million in both 2012 and 2013 before falling to $15 million in 2014 and $7 million in 2015. • Implementing this new product line would also require large investments and expenditures by the company. New plant and equipment costing $9 million must be purchased and this specific equipment would be depreciated straight line to a zero-book value over its five-year life. This depreciation expense flowed into the cost of goods sold and was already included in the estimate that the cost of goods sold would be 71% of sales. Holt expected that net working capital would be 15% of sales. • The initial investment in equipment and net working capital would occur in 2010 (i.e., on 31/12/2010). In subsequent years the net working capital would increase and then decrease as sales of the new product line rose and then fell. As a practical matter, the buildup in working capital would have to be made at the beginning of the sales year in question (or, equivalently, by the end of the previous year). Selling, general and administrative expenses are expected to be 9% of sales. In addition, the marketing manager also planned a one-time $326,013 advertising and promotion campaign simultaneous with the product launch in 2011. • The plant would be built on land that the company already owned. The land could be rented out for a rental income of $0.59 million yearly (pre-tax) if the company did not undertake the project. The rentals would be paid at the end of each year. • The project would shut down at the end of 2015, and the plant would be sold for $1 million. The company faces a 41% tax rate. The appropriate discount rate for this project is 11%. The company has other profitable operations. What is the NPV of this project (in millions of $)? Input your response in millions of $s rounded to two decimal places (without the $ sign).
Expert Answer:
Answer rating: 100% (QA)
Answer The NPV of this project is 924 million Calculations The NPV of this project is calculated usi... View the full answer
Related Book For
Posted Date:
Students also viewed these finance questions
-
Calculate the amount of interest earned on a $635.00 deposit at 6.5% p.a. between October 2, 2019 and August 4, 2020.
-
Calculate the amount of heat liberated (in kJ) from 366 g of mercury when it cools from 77.0C to 12.0C?
-
Calculate the amount of additional cash that a company could raise from suppliers if its trade credit is extended by 10 days. Assume that the companys trade payables are $300,000 and that it buys...
-
Find any horizontal or vertical asymptotes. f(x) = = X 1- X
-
You recently began recording a weekly podcast to share information with your large and far-flung staff. Now after a month, you've asked for feedback from several of your subordinates, and you're...
-
An infinite rod has an initial square-pulse displacement function \(\eta(0, x)=C\), a constant, for \(|x| \leq b\) and \(\eta(0, x)=0\) for \(|x|>b\). (a) Find the displacement function \(\eta(t,...
-
After the positrons were annihilated, the energy density of the universe was dominated by the photons and the neutrinos. Show that the energy density in that era was given by \(u_{\text {total...
-
On January 1, 2014, Geffrey Corporation had the following stockholders equity accounts. Common Stock ($20 par value, 60,000 shares issued and outstanding) ......$1,200,000 Paid-in Capital in Excess...
-
An airplane flies level in the + x direction 1 0 0 m above the ground at 1 6 0 m / s . the plane drops goods and supplies to some people on the ground. 1 . Draw the path the supplies would follow...
-
What are some of the arguments for and against using the term industrial relations to describe union management relationships?
-
The circular dish, whose cross section is shown, has an outside diameter of 0.20 m. A water jet with speed of 35 m/s strikes the dish concentrically. The dish moves to the left at 15 m/s. The jet...
-
the consideration of sustainability and ethical practices in global finance is crucial for creating a more just and responsible financial system. How do you plan to apply your newfound knowledge and...
-
Import java.util.Scanner; public class Main { public static void main(String[] args) { // 1. See what happens with Mary. // Mary had 6 dollars 50 cents. She puts them all into a bank. But the bank...
-
All of the following situations are acceptable for hedging EXCEPT Question 8 options: an investor with a concentrated portfolio. an investor who needs liquidity. an investor with a well-diversified...
-
1. Make a Java Program: 2. Make a class name Bus and make a main class name Main 3. In the Bus class, there should be member variables named: -(integers) = length, capacity, speed -(double) =...
-
Balloon payments Question 10 options: occur at the beginning of the loan. decrease the probability of default. increase the maturity of the loan. can consist of principal and accrued interest....
-
Required 1 Required 2 Required 3 3. Assume the cost object is the company's various sales representatives. Furthermore, assume the company spent $95,950 of its total fixed selling expense on...
-
When the concentration of a strong acid is not substantially higher than 1.0 10-7 M, the ionization of water must be taken into account in the calculation of the solution's pH. (a) Derive an...
-
One of the reactions that occurs in a blast furnace, where iron ore is converted to cast iron, is Suppose that 1.64 Ã 103 kg of Fe are obtained from a 2.62 Ã 103-kg sample of Fe2O3....
-
A certain hydrate has the formula MgSO4 xH2O. A quantity of 54.2 g of the compound is heated in an oven to drive off the water. If the steam generated exerts a pressure of 24.8 atm in a 2.00-L...
-
For each pair of isotopes listed, predict which one is less stable: (a) (b) (c) L1 or L1. Na or Na 48 Ca or2Sc
-
Per pupil spending often varies among school districts in a given state. Suppose that one district spends $6,000 per pupil for instruction (excluding transportation, lunches, administration, and so...
-
The state- local government sector stopped growing relative to the size of the economy in the late 1970s because of a decline in the amount of federal aid to states and localities. Do you think this...
-
Although the diversity of subnational governments means that the notion of typicalbehavior is often not meaningful, it is still common in presentations of data, news reports, and political debate to...
Study smarter with the SolutionInn App