Ray Sports Products wants to expand its business by selling a new type of soccer ball...
Fantastic news! We've Found the answer you've been seeking!
Question:
Transcribed Image Text:
Ray Sports Products wants to expand its business by selling a new type of soccer ball that is more durable than its current offering. The CFO of Ray has collected the following pieces of information. The sale of the new ball will generate $6,800,000 in sales each year for the next 10 years. A portion of these new sales, $500,000, will come from existing customers who would have bought the old ball. Because of the expansion, operating costs will increase by $1,250,000 per year. This number reflects the cost reduction of producing fewer of the old balls. The firm spent $800,000 on testing various types of balls. The company uses straight-line depreciation. The project has an economic life of 10 years. Total cost of the plant and equipment that will be required for the project is $16,000,000, which will be depreciated to a salvage value of $4,000,000 and sold for that amount in 10 years. Ray will increase net working capital by $1,250,000 at the beginning of the project, and it will be liquidated at the end of the project. Ray's marginal tax rate is 34%. Ray's weighted average cost of capital (WACC) is 10%. (1 point) The initial net cash flow of the project is $ (1 point) The project's operating net cash flow in year 3 is $ (1 point) The project's total cash flow in year 10 is S (0.5 point) The NPV of this project is $ Ray Sports Products wants to expand its business by selling a new type of soccer ball that is more durable than its current offering. The CFO of Ray has collected the following pieces of information. The sale of the new ball will generate $6,800,000 in sales each year for the next 10 years. A portion of these new sales, $500,000, will come from existing customers who would have bought the old ball. Because of the expansion, operating costs will increase by $1,250,000 per year. This number reflects the cost reduction of producing fewer of the old balls. The firm spent $800,000 on testing various types of balls. The company uses straight-line depreciation. The project has an economic life of 10 years. Total cost of the plant and equipment that will be required for the project is $16,000,000, which will be depreciated to a salvage value of $4,000,000 and sold for that amount in 10 years. Ray will increase net working capital by $1,250,000 at the beginning of the project, and it will be liquidated at the end of the project. Ray's marginal tax rate is 34%. Ray's weighted average cost of capital (WACC) is 10%. (1 point) The initial net cash flow of the project is $ (1 point) The project's operating net cash flow in year 3 is $ (1 point) The project's total cash flow in year 10 is S (0.5 point) The NPV of this project is $
Expert Answer:
Answer rating: 100% (QA)
To calculate the various cash flows and the net present value NPV of the project well consider the information provided Lets calculate each component ... View the full answer
Related Book For
Financial Reporting Financial Statement Analysis and Valuation a strategic perspective
ISBN: 978-1337614689
9th edition
Authors: James M. Wahlen, Stephen P. Baginski, Mark Bradshaw
Posted Date:
Students also viewed these finance questions
-
1 Introducing MPO Fentres Founded in 1970 in Alenon (Orne), the company MPO Fentres (Menuiserie Plastique de lOuest) was one of the first French companies in the PVC/carpentry sector to offer a...
-
Never mind computers and tech services. IBM's radical new focus is on revamping customers' operations -- and even running them It was over a lunch in Cincinnati two years ago that IBM Chief Executive...
-
Giroud plc is considering two alternative investment opportunities. Each of the two projects has an expected life of five years and requires an initial investment of $100,000. A feasibility study...
-
You are asked to design a spring that will give a 1160-kg satellite a speed of 2.50 m/ s relative to an orbiting space shuttle. Your spring is to give the satellite a maximum acceleration of 5.00g....
-
A ladder 10 ft long rests against a vertical wall. Let be the angle between the top of the ladder and the wall and let be the distance from the bottom of the ladder to the wall. If the bottom of the...
-
An investment is guaranteed to have a unique value of IRR if which of the following is true? a. Alternating positive and negative cash flows b. An initial negative cash flow followed by all positive...
-
The Celtics Basketball Holdings, L.P. and Subsidiary included the following note in its 1998 annual report: Note GCommitments and Contingencies (in Part) National Basketball Association (NBA)...
-
Brae Industries Inc. purchased a machine on January 2, 2020, with a cost of $175,000, with an expected useful life of five (5) years, and an estimated salvage value of $8,000. Brae depreciates all...
-
You have a business based in Vietnam that has just imported a product from Thailand. The invoice for this purchase is denominated in Vietnamese dong and must be paid in 60 days. That is, you will pay...
-
Rather than simply comparing government revenues and tax receipts, analysts are sometimes interested in the "cyclically adjusted" budget balance. What does it mean to consider the cyclically adjusted...
-
Begin your initial post by introducing yourself to your classmates. Briefly share your thoughts on why you joined the class and what your short- and long-term goals are regarding financial...
-
A loan arrangement in which a parent company reduces its political risk by using an intermediary bank rather than a direct transfer of funds to a subsidiary is called a(n) Multiple Choice parallel...
-
Pop Eye Company manufactures two types of sailboats, Simple and Complex. Simple is a high-volume product that is relatively simplistic in nature while complex is a low-volume complex manufacturing...
-
Profit, not-for-profit/nonprofit, give a specific example of each type of organization (a business you have heard of, done business with or worked for). For each one, discuss what you foresee as...
-
What is the difference between a fake, completely made-up story and a story that someone calls "fake news" because he or she does not like parts of the facts revealed, or quotes from sources in the...
-
Jennifer, a single taxpayer, operates a business that produces $95,000 of income before any amounts are paid to her. She has no dependents and no other income. (Click the icon to view the standard...
-
Find the velocity, acceleration, and speed of a particle with the given position function. r(t) = (t 2 , sin t - t cos t, cos t + t sin t), t > 0
-
Access the investor relations or corporate information section of the websites of American Airlines (www.aa.com), Intel (www.intel.com), and Disney (disney.go.com). Study the business strategies of...
-
Effective financial statement analysis requires an understanding of a firms economic characteristics. The relations between various financial statement items provide evidence of many of these...
-
Selected data for General Mills for 2007, 2008, and 2009 appear below (amounts in millions). Required a. Compute the rate of ROCE for 2007, 2008, and 2009. b. Compute basic EPS for 2007, 2008, and...
-
For each of the following studies, identify the type of graph (histogram, time series graph, or scatter diagram) that would be the most appropriate. (You can use more than one graph of each type, for...
-
Use the data in Table 1.4 to make a histogram of the U.S. dollar prices of a Big Mac in these 20 countries. Use these intervals for the prices: 13, 34, 45, 58. United States Argentina Australia Big...
-
For each of the following studies, identify the type of graph (histogram, time series graph, or scatter diagram) that would be the most appropriate. (You can use more than one graph of each type, for...
Study smarter with the SolutionInn App