Question: will you please explain step by step I was confused a bit, thank you for your help! ntroductory Project Valuation Steves Sub Stop (Steves) is
will you please explain step by step I was confused a bit, thank you for your help!
ntroductory Project Valuation Steves Sub Stop (Steves) is considering investing in toaster ovens for each of its 120 stores located in the southwestern United States. The high-capacity conveyor toaster ovens, manufactured by Lincoln, will require an initial investment of $15,000 per store plus $500 in installation costs, for a total investment of $1,860,000. The new capital (including the costs for installation) will be depreciated over five years using straight-line depreciation toward a zero salvage value. Steves will also incur additional maintenance expenses totaling $120,000 per year to maintain the ovens. At present, firm revenues for the 120 stores total $9 million, and the company estimates that adding the toaster feature will increase revenues by 10%. a. If Steves faces a 30% tax rate, what expected project FCFs for each of the next five years will result from the investment in toaster ovens? b. If Steves uses a 9% discount rate to analyze its investments in its stores, what is the projects NPV? Should the project be accepted?
| 0 | 1 | 2 | 3 | 4 | 5 | |
| Incremental Revenues | $ 900,000 | $ 900,000 | $ 900,000 | $ 900,000 | $ 900,000 | |
| Incremental Depreciation | ||||||
| Incremental maintenance expense | ||||||
| Incremnental EBIT | ||||||
| Taxes | ||||||
| NOPAT | ||||||
| Plus: Depreciation | ||||||
| Less: CAPEX | - | - | - | - | - | - |
| Less: New working capital needs | - | - | - | - | - | |
| Project Free Cash Flow (PFCF) | ||||||
| Net Present Value | ||||||
| Internal Rate of Return | ||||||
| Should the Project be Accepted? | ||||||
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