Tholo Manufacturing Company is considering an investment project: producing pink colored tennis balls. The estimated life...
Fantastic news! We've Found the answer you've been seeking!
Question:
Transcribed Image Text:
Tholo Manufacturing Company is considering an investment project: producing pink colored tennis balls. The estimated life of the project: 5 years. The cost of test marketing: $250,000. • Would be produced in a vacant building owned by the firm; the property can be sold for $150,000 after taxes. The cost of a new machine: $100,000. The estimated market value of the machine at the end of 5 years: $30,000. Production by year for the 5-year life: 5,000 units, 8,000 units, 12,000 units, 10,000 units, and 6,000 units. The price of tennis balls in the first year: $20 each. The price of tennis balls will increase at 2% per year. No debt financing; no interest expenses. First-year production costs: $10 per unit. Production costs will increase at 10% per year. Incremental/marginal corporate tax rate: 34%. An initial investment (at year 0) in net working capital: $10,000. • NWC at the end of each year will be equal to 10% of sales for that year. NWC at the end of the project is zero. The machinery will be depreciated on a straight line. Required: a. Lay out the relevant cash flows to the project. (25 marks) b. Calculate the NPV of the project if the discount rate is 10%. (5 marks) Tholo Manufacturing Company is considering an investment project: producing pink colored tennis balls. The estimated life of the project: 5 years. The cost of test marketing: $250,000. • Would be produced in a vacant building owned by the firm; the property can be sold for $150,000 after taxes. The cost of a new machine: $100,000. The estimated market value of the machine at the end of 5 years: $30,000. Production by year for the 5-year life: 5,000 units, 8,000 units, 12,000 units, 10,000 units, and 6,000 units. The price of tennis balls in the first year: $20 each. The price of tennis balls will increase at 2% per year. No debt financing; no interest expenses. First-year production costs: $10 per unit. Production costs will increase at 10% per year. Incremental/marginal corporate tax rate: 34%. An initial investment (at year 0) in net working capital: $10,000. • NWC at the end of each year will be equal to 10% of sales for that year. NWC at the end of the project is zero. The machinery will be depreciated on a straight line. Required: a. Lay out the relevant cash flows to the project. (25 marks) b. Calculate the NPV of the project if the discount rate is 10%. (5 marks)
Expert Answer:
Answer rating: 100% (QA)
a Relevant Cash Flows Year 0 Initial Investment Cost of test marketing 250000 Cost of new machine 10... View the full answer
Related Book For
Valuation The Art and Science of Corporate Investment Decisions
ISBN: 978-0133479522
3rd edition
Authors: Sheridan Titman, John D. Martin
Posted Date:
Students also viewed these accounting questions
-
Chromalox Instruments and Controls, located in LaVergne, Tennessee, is a manufacturer of industrial process controllers, monitors, and industrial and military control panels. Chromalox products are...
-
Nuval Audio Systems (NAS), Inc. is evaluating the market potential of producing and marketing latest version of a voice recognition (VR) computer keyboard. The results of an initial questionnaire...
-
Great Northern, Inc. Capital Investment Analysis Great Northern, Inc. is an Idaho-based company that manufactures equipment for the mining industry. The company is considering an investment in a...
-
Steam leaves a nozzle with a pressure of 500 kPa, a temperature of 350C, and a velocity of 250 m/s. What is the isentropic stagnation pressure and temperature?
-
Should citizens be concerned if the pension plan funding measure decreases over time? Why?
-
Explain why the intermolecular forces in a sample of helium and neon are very small.
-
What key elements should be included in a typical job description?
-
Flint Tooling Company is considering replacing a machine that has been used in its factory for two years. Relevant data associated with the operations of the old machine and the new machine, neither...
-
Consider Country Z's aggregate demand which comprises four sectors (i.e., households, firms, government, and foreign trade). The following equation represents the country's equilibrium output and...
-
1. Bare cost and total cost (incl. O&P) of formwork for spread footings (20 pts, specify which lines (or index) in RSMeans data are used) 2. Bare cost and total cost of reinforcement for spread...
-
A rocket needs to deliver 5000 N thrust with a chamber pressure of 2.039 MPa, chamber temperature of 2800 K. The specific heat ratio is 1.2 and gas constant is 360 J/kg-K. The atmospheric pressure is...
-
You have a tract of land on which trees can be grown. The initial cost of planting the trees is Rs 80,000. The net revenue realisable from the harvesting of trees would be as follows: The opportunity...
-
172.Sharma Company's balance sheet reflects total assets of $250,000 and total liabilities of $150,000. Calculate the company's debt-to-equity ratio. 173.On October 1 of the current year a...
-
Seagrams, a company best known for its gin, also owns Universal Records. This is an example of what trend in the media industry?
-
McCauley Bagpipes produces two models: Model 24 has sales of 500 units with a contribution margin of $40 each; Model 26 has sales of 350 units with a contribution margin of $50 each. If sales of...
-
Suppose that the two bones found belonging to the male in questions 13b and 13c were his ulna, which is 21 cm long, as well as his humerus, which is 30 cm. Calculate his height using both the ulna...
-
TCL Motor Company just paid a dividend of $2.10. It is The company is expected to grow the dividend at a rate of 10 percent next year, 8 percent for the following two years, and then a constant...
-
Refer to the data for problem 13-36 regarding Long Beach Pharmaceutical Company. Required: Compute each division's residual income for the year under each of the following assumptions about the...
-
The free cash flow estimated for 2008 in the Lecion example was equal to $ 1,383,436,000. Verify this computation using the assumptions underlying the model. Compute the free cash flow for 2008 if...
-
The Central and Southeast Power Company of Mobile, Alabama, is considering a new power plant that will allow it to switch between gas and oil. The company has a contract to provide it with gas for $...
-
In 2014, worldwide capacity of wind-powered generators was growing. Wind power still constitutes a small fraction of worldwide electricity use, but in Denmark, wind power provides over 20% of...
-
A stock's beta is a measure of the stock's: A. total risk. B. market risk. C. unsystematic risk.
-
The larger the standard deviation of an asset's returns, the greater is the assets: A. total risk. B. market risk. C. unsystematic risk.
-
Which of the following is most likely considered a negative covenant? A. The company must maintain a current ratio of 2.0 or above. B. The company must maintain insurance on specific property. C. The...
Study smarter with the SolutionInn App