Capital Budgeting Problem Kraemer Company is launching a new product. The following information relates to the...

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Capital Budgeting Problem Kraemer Company is launching a new product. The following information relates to the launch: 2/12/21 1) 4 year project life 8) Sales for first year 2) New equipment cost -200,000 9) Sales increase per year 200,000 5% 3) Equipment ship & install cost 4) Related start up cost -35,000 -5,000 10) Operating cost: -120,000 as a percent of sales -60% 5) Inventory increase (one time) 25,000 11) Depreciation expense (per year) -60,000 6) Accounts Payable increase (one time) 7) Equip. salvage value after tax 5,000 12) Tax rate -21% 15,000 13) WACC 10% Cash Flow Framework: Year Investments: Total Operations: Revenue Operating Cost Depreciation EBIT Taxes Net Income Add back- Depreciation Total Terminal: Total Cash Flows NPV= IRR = 0 1 2 3 4 0 0 0 0 0 Payback= Should Kraemer launch the new product? Why? How would you explain to your CEO (in business terms) what NPV means? Are you sure your NPV calculation 100% correct? What else should you do to help the analysis? How is the business risk accounted for in this project? Capital Budgeting Problem Kraemer Company is launching a new product. The following information relates to the launch: 2/12/21 1) 4 year project life 8) Sales for first year 2) New equipment cost -200,000 9) Sales increase per year 200,000 5% 3) Equipment ship & install cost 4) Related start up cost -35,000 -5,000 10) Operating cost: -120,000 as a percent of sales -60% 5) Inventory increase (one time) 25,000 11) Depreciation expense (per year) -60,000 6) Accounts Payable increase (one time) 7) Equip. salvage value after tax 5,000 12) Tax rate -21% 15,000 13) WACC 10% Cash Flow Framework: Year Investments: Total Operations: Revenue Operating Cost Depreciation EBIT Taxes Net Income Add back- Depreciation Total Terminal: Total Cash Flows NPV= IRR = 0 1 2 3 4 0 0 0 0 0 Payback= Should Kraemer launch the new product? Why? How would you explain to your CEO (in business terms) what NPV means? Are you sure your NPV calculation 100% correct? What else should you do to help the analysis? How is the business risk accounted for in this project?

Answer rating: 100% (QA)

To determine whether Kraemer Company should launch the new product lets analyze the provided information and calculate the Net Present Value NPV and Internal Rate of Return IRR of the project Using th... View the full answer