Finance 325 Chapter 11 Flashca x C Chegg: Essentials of Corporate x + /books/9781260394719/1/6/SRV/4/18/18/8/2/200375 1. Relevant Cash Flows Kenny, Inc., is looking at setting up a new manufacturing plant in South Park. The company bought some land six years ago for $5.3 million in anticipation of using it as a warehouse and distribution site, but the company has since decided to rent facilities elsewhere. The land would net $7.7 million if it were sold today. The company now wants to build its new manufacturing plant on this land; the plant will cost $29.3 million to build, and the site requires $1.41 million worth of grading before it is suitable for construction. What is the proper cash flow amount to use as the initial investment in fixed assets when evaluating this project? Why? 2. Relevant Cash Flows Winnebagel Corp.currently sells 28,000 motor homes per year at $84.000 each and 7.000 luxury motor coaches per year at $135.000 each. The company wants to introduce a new portable camper to fill out its product line; it hopes to sell 29.000 of these campers per year at $24.700 each. An independent consultant has determined that if the company introduces the new campers, it could boost the sales of its existing motor homes by 2.500 units per year and reduce the sales of its motor coaches by 750 units per year. What is the amount to use as the annual sales figure when evaluating this project? Why? 2 3. Calculating Projected Net Income A proposed new investment has projected sales of $635.000. Variable costs are 40 percent of sales, and fixed costs are $168.000; depreciation is $83.000. Prepare a pro forma income statement assuming a tax rate of 3 percent. What is the projected net income? 2 4. Calculating OCF Consider the following income statement: $537 200 Depreciation Taxes (2190 Net income Dy Green he OCF. What is the depreciation tax shield? lon A piece of newly purchased industrial equipment costs $745.000 and is classified as seven-year property under MACRS. C ulate the annual and end-of-the-year book values for this equipment alue Consider an asset that costs $635.000 and is depreciated straight-line to nero over its eight-year tax life. The asset is to be used in a five-year project, the asset can be sold for $105.000. If the relevant tax rate is a percent, what is the aftertax cash flow from the sale of this asset? lue An asset used in a four-year project falls in the five-year MACRS class for tax purposes. The asset has an acquisition cost of $6.8 million and llion at the end of the project. If the tax rate is 23 percent, what is the aftertax salvage value of the asset? CF Cusic Music Company is considering the sale of a new sound board used in recording studios, The new board would sell for $26.400, and they 8 AN TO B Copy Read Aloud from here