that Use the following information to answer the 8 questions follow When answering the questions, DO...
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that Use the following information to answer the 8 questions follow When answering the questions, DO NOT use dollar signs, USE commas to separate thousands, DO NOT use parenthesis to denote negative numbers, USE the negative sign and place it in front of first digit of your answer when your answer is a negative number. Round to the nearest dollar (do not enter decimals). For example, if your answer is $1,245,300.40 then enter 1,245,300 RET Inc. currently has one product, lowpriced stoves. RET Inc. has decided to sell a new line of mediumpriced stoves. Sales revenues for the new line of stoves are estimated at $50 million a year. Variable costs are 60% of sales. The project is expected to last 10 years. Also, nonvariable costs are $10,000,000 per year. The company has spent $4,000,000 in research and a marketing study that determined the company will lose (cannibalization) $10 million in sales a year of its existing low priced stoves. The production variable cost of the existing lowpriced stoves is $8 million a year. The plant and equipment required for producing the new line of stoves costs $30,000,000 and will be depreciated down to zero over 30 years using straightline depreciation. It is expected that the plant and equipment can be sold (salvage value) for $12,000,000 at the end of 10 years. The new stoves will also require today an increase in net working capital of $5,000,000 that will be returned at the end of the project. The tax rate is 20 percent and the cost of capital is 10%. 1. What is the initial outlay (IO) for this project? 35000000 A 2. What is the annual Earnings before Interests, and Taxes (EBIT) for this project? A 3. What is the annual net operating profits after taxes (NOPAT) for this project? A 4. What is the annual incremental net cash flow (operating cash flow: OCF) for this project? A/ equipment at the end of the project? A/ 6. What is the cash flow due to tax on salvage value for this project? Enter a negative # if it is a tax gain. For example, if your answer is a tax on capital gains of $3,004.80 then enter 3,005: if your answer is a tax shelter from a capital loss of $1,000,20 then enter 1.000 A 7. What is the project's cash flow for year 10 for this A 8. What is the Net Present Value (NPV) for this A project? project? What is the remaining book value for the plant at
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1 Initial Outlay IO Initial cost of plant and equipment 30 000 000 Increase in net working capital 5 000 000 Research and marketing study cost 4 000 0 View the full answer
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