Layla's Distribution Co. is considering a project which will require the purchase of a new machine...
Fantastic news! We've Found the answer you've been seeking!
Question:
Transcribed Image Text:
Layla's Distribution Co. is considering a project which will require the purchase of a new machine in $1.8 million. The machine will be depreciated straight-line to a zero book value over the 5-year life. Layla's expects to sell the machine at the end of the project for 10 percent of its initial cost. Annual sales from this project are estimated at $1.3 million. Operating costs are estimated at $0.5 million per year. Layla's requires inventory equal to 20 percent of the sales, account receivable equal to 25% of the sales, and account payable equal to 15% of the sales over the life of the project. All of the net working capital will be recouped at the end of the project. The firm does not have debt and desires a minimal 15% rate of return on this project. The tax rate is 34%. A. What are the changes in NWC at the start and at the end of the project? B. What is the NPV of this project? Layla's Distribution Co. is considering a project which will require the purchase of a new machine in $1.8 million. The machine will be depreciated straight-line to a zero book value over the 5-year life. Layla's expects to sell the machine at the end of the project for 10 percent of its initial cost. Annual sales from this project are estimated at $1.3 million. Operating costs are estimated at $0.5 million per year. Layla's requires inventory equal to 20 percent of the sales, account receivable equal to 25% of the sales, and account payable equal to 15% of the sales over the life of the project. All of the net working capital will be recouped at the end of the project. The firm does not have debt and desires a minimal 15% rate of return on this project. The tax rate is 34%. A. What are the changes in NWC at the start and at the end of the project? B. What is the NPV of this project? Layla's Distribution Co. is considering a project which will require the purchase of a new machine in $1.8 million. The machine will be depreciated straight-line to a zero book value over the 5-year life. Layla's expects to sell the machine at the end of the project for 10 percent of its initial cost. Annual sales from this project are estimated at $1.3 million. Operating costs are estimated at $0.5 million per year. Layla's requires inventory equal to 20 percent of the sales, account receivable equal to 25% of the sales, and account payable equal to 15% of the sales over the life of the project. All of the net working capital will be recouped at the end of the project. The firm does not have debt and desires a minimal 15% rate of return on this project. The tax rate is 34%. A. What are the changes in NWC at the start and at the end of the project? B. What is the NPV of this project? Layla's Distribution Co. is considering a project which will require the purchase of a new machine in $1.8 million. The machine will be depreciated straight-line to a zero book value over the 5-year life. Layla's expects to sell the machine at the end of the project for 10 percent of its initial cost. Annual sales from this project are estimated at $1.3 million. Operating costs are estimated at $0.5 million per year. Layla's requires inventory equal to 20 percent of the sales, account receivable equal to 25% of the sales, and account payable equal to 15% of the sales over the life of the project. All of the net working capital will be recouped at the end of the project. The firm does not have debt and desires a minimal 15% rate of return on this project. The tax rate is 34%. A. What are the changes in NWC at the start and at the end of the project? B. What is the NPV of this project?
Expert Answer:
Answer rating: 100% (QA)
aN WC Sales NW C Account s Rece ivable AR Account s Pay able AP N WC at start of pro... View the full answer
Related Book For
Statistics for Business and Economics
ISBN: 978-0134506593
13th edition
Authors: James T. McClave, P. George Benson, Terry Sincich
Posted Date:
Students also viewed these accounting questions
-
The trading skills of institutional stock investors were quantified and analyzed in The Journal of Finance (April 2011). The study focused on "round-trip" trades, i.e., trades in which the same stock...
-
If regulations restricting institutional investors to investment grade bonds were lifted, what do you think would happen to the spreads between yields on investment grade and speculative grade bonds?
-
What are institutional investors? How are individual investors likely to be affected by institutional investors?
-
Posting the entries from the sales journal to the accounts receivable subsidiary ledger should be done ______. a). at the end of each month b). on a weekly basis c). on a daily basis d). only at the...
-
Explain how the three profitability ratios indicate how a firm uses its resources to generate profits.
-
Note whether hydrolysis occurs for each of the following ions. If hydrolysis does occur, write the chemical equation for it. Then write the equilibrium expression for the acid or base ionization...
-
An electronic instrument of mass \(10 \mathrm{~kg}\) is mounted on an isolation pad. If the base of the isolation pad is subjected to a shock in the form of a step velocity of \(10 \mathrm{~mm} /...
-
The following data give the selling price, square footage, number of bedrooms, and age of houses that have sold in a neighborhood in the past 6 months. Develop three regression models to predict the...
-
Discuss the various Inter-Process Communication (IPC) mechanisms such as message queues, shared memory, and pipes. What are the use cases and advantages of each, and how do they ensure...
-
Healthwise Medical Supplies Company is located at 2400 Second Street, City, ST 12345. The company is a general partnership that uses the calendar year and accrual basis for both book and tax...
-
Suppose the following data describe a nation's population: Year 1 130 million 65 million 4.5 million Population Labor force Unemployed Year 2: Instructions: Round your responses to two decimal...
-
On July 1, 2015, Selig Company purchased for cash 40% of the outstanding ordinary shares of Spoor Corporation. Both Selig and Spoor have a December 31 year-end. Spoor Corporation, whose shares are...
-
Assume that on January 1, 2015, Stora Enso (FIN) signs a 10-year, non-cancelable lease agreement to lease a storage building from Balesteros Storage Company. The following information pertains to...
-
McCormick Corporation issued a 4-year, \($40\),000, 5% note to Greenbush Company on January 1, 2015, and received a computer that normally sells for \($31\),495. The note requires annual interest...
-
Coldwell, Inc. issued a 100,000, 4-year, 10% note at face value to Flint Hills Bank on January 1, 2015, and received 100,000 cash. The note requires annual interest payments each December 31. Prepare...
-
Duesbury Corporation amended its pension plan on January 1, 2015, and granted \($120\),000 of past service costs to its employees. The employees have an average time to vesting of 4 years. Current...
-
A stuntman swings from the end of a 4.10 m long rope along the arc of a vertical circle. If his mass is 72.5 kg, find the tension in the rope required to make him follow his circular path, assuming...
-
A number of years ago the United Food and Commercial Workers Union organized 800 workers of the 1035 employees at one of the Wilson Brothers food operations in Toronto, Ontario. The employees include...
-
Lead time is the time between a retailer placing an order and having the product available to satisfy customer demand. It includes time for placing the order, receiving the shipment from the...
-
Refer to Exercises 14.66 and 14.67. For each of the forecasting models, apply the MAD, MAPE, and RMSE criteria to evaluate the forecasts for the four quarters of 2016. Which of the forecasting models...
-
Refer to the annual OPEC oil import data, Exercise 14.21. a. Use the exponentially smoothed (w = .9) series you constructed in Exercise 14.21a to forecast OPEC oil imports in 2015. b. Forecast OPEC...
-
The inversion point of a gas can be mathematically expressed as (a) \(T_{i}=\frac{2 a b}{R}\) (b) \(T_{i}=\frac{2 b}{R a}\) (c) \(T_{i}=\frac{2 a}{R b}\) (d) None of these.
-
Residual free energy is defined as (a) \(G^{R}=G-G^{\mathrm{ig}}\) (b) \(G^{R}=G^{\mathrm{ig}}-G\) (c) \(G^{R}=G+G^{\mathrm{ig}}\) (d) None of these.
-
Departure functions are useful to calculate the thermodynamic property of real fluids (a) When the \(P-V-T\) data of the substance is unavailable (b) When the \(P-V-T\) data of the substance is...
Study smarter with the SolutionInn App