You work for Apple. After toiling away on $10.8 million worth of prototypes, you have finally...
Fantastic news! We've Found the answer you've been seeking!
Question:
Transcribed Image Text:
You work for Apple. After toiling away on $10.8 million worth of prototypes, you have finally produced your answer to Google Glasses: iGlasses (the name alone is genius). iGlasses will instantly transport the wearer into the world as Apple Question Viewer perience it: iTunes with the wink of an eye and apps that can be activated just by looking at them. You think that these will sell for five years until the next big thing comes along (or until users are unable to interact with actual human beings). Revenues are projected to be $449.6 million per year along with expenses of $345.8 million. You will need to spend $64.9 million immediately on additional equipment that will be depreciated using the 5-year MACRS schedule. Additionally, you will use some fully depreciated existing equipment that has a market value of $9.4 million. As the iGlasses are an outcome of the R&D center, Apple plans to charge $4.8 million of the annual costs of the center to the iGlasses product for four years. Finally, Apple's working capital levels will increase from their current level of $124.5 million to $144.7 million immediately. They will remain at the elevated level until year 4, when they will return to $124.5 million. Apple's discount rate for this project is 15.6% and its tax rate is 21%. Calculate the free cash flows and determine the NPV of this project. (Note: Assume that the opportunity cost must be after-tax and the equipment is put into use in year 1.) Calculate the free cash flows below: (Round to two decimal places.) ($ million) Year 0 Year 1 Year 2 Year 3 Sales $ 0.00 $ - Cost of Goods Sold 0.00 Gross Profit $ 0.00 $ SA EA $ $ GA - Annual Charge 0.00 0.00 0.00 0.00 - Depreciation EBIT $ 69 $ EA $ - Tax Incremental Earnings + Depreciation -Incremental Working Capital - Capital Investment - Opportunity Cost Incremental Free Cash Flow EA EA $ EA EA GA SA Year 4 0.00 EA $ EA GA Year 5 $ Year 6 0.00 EA SA EA 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 SA You work for Apple. After toiling away on $10.8 million worth of prototypes, you have finally produced your answer to Google Glasses: iGlasses (the name alone is genius). iGlasses will instantly transport the wearer into the world as Apple Question Viewer perience it: iTunes with the wink of an eye and apps that can be activated just by looking at them. You think that these will sell for five years until the next big thing comes along (or until users are unable to interact with actual human beings). Revenues are projected to be $449.6 million per year along with expenses of $345.8 million. You will need to spend $64.9 million immediately on additional equipment that will be depreciated using the 5-year MACRS schedule. Additionally, you will use some fully depreciated existing equipment that has a market value of $9.4 million. As the iGlasses are an outcome of the R&D center, Apple plans to charge $4.8 million of the annual costs of the center to the iGlasses product for four years. Finally, Apple's working capital levels will increase from their current level of $124.5 million to $144.7 million immediately. They will remain at the elevated level until year 4, when they will return to $124.5 million. Apple's discount rate for this project is 15.6% and its tax rate is 21%. Calculate the free cash flows and determine the NPV of this project. (Note: Assume that the opportunity cost must be after-tax and the equipment is put into use in year 1.) Calculate the free cash flows below: (Round to two decimal places.) ($ million) Year 0 Year 1 Year 2 Year 3 Sales $ 0.00 $ - Cost of Goods Sold 0.00 Gross Profit $ 0.00 $ SA EA $ $ GA - Annual Charge 0.00 0.00 0.00 0.00 - Depreciation EBIT $ 69 $ EA $ - Tax Incremental Earnings + Depreciation -Incremental Working Capital - Capital Investment - Opportunity Cost Incremental Free Cash Flow EA EA $ EA EA GA SA Year 4 0.00 EA $ EA GA Year 5 $ Year 6 0.00 EA SA EA 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 SA
Expert Answer:
Posted Date:
Students also viewed these finance questions
-
The post-closing trial balances of two proprietorships on January 1, 2010, are presented below. Patrick and Samuelson decide to form a partnership, Pasa Company, with the following agreed upon...
-
For the network in figure, choose the value of C for criticaldamping. v(1) (+ 103 (1)a
-
What was the first strategy for a hedge fund initiated by the founder of the industry?
-
Departmental overhead calculation and journal entries Yavmbebek has inventory, pro- duction, and finishing departments. Following are data on activity and costs budgeted for the coming year:...
-
The Anderson Manufacturing Company (AMC) is located in Las Vegas, Nevada, and manufactures specialty parts for high-end sports cars. The company currently has an accounting information system, but...
-
\f\f
-
Does electricity consumption increase with square footage? Conduct a linear regression test to find out. Your response variable is ELCNS and the explanatory variable is SQFT. You must complete the...
-
Discuss the CPA's responsibility if disclosures in interim financial statements are not adequate. What basis does the CPA use in evaluating the adequacy of disclosures in interim financial statements?
-
An auditors primary consideration regarding an entitys internal controls is whether they a. Prevent management override. b. Relate to the control environment. c. Reflect managements philosophy and...
-
Which of the following statements about internal control is correct? a. A properly maintained internal control system reasonably ensures that collusion among employees cannot occur. b. The...
-
In 20X2, McCullough Limited earned \(\$ 8,040,000\), and dividends of \(\$ 2,250,000\) were declared and paid. The company has two classes of voting shares. Class A shares have eight votes per share,...
-
Trend analysis is best described by a. The comparison, across time or to a benchmark, of relationships between financial statement accounts or between an account and nonfinancial data. b. Development...
-
The shape of a normal distribution whose mean is 50 and whose standard deviation is 10 would be wider than a normal distribution whose mean is also 50 but whose standard deviation is 12. Choose ALL...
-
One of the significant and relevant accounts for this cycle is equipment. For this account, what would typically be the most relevant assertions for the auditor to consider? Why is it important for...
-
Selected transactions for Neve Campbell Company during its first month in business are presented below. Sept. 1 Invested $10,000 cash in the business in exchange for common stock. 5 Purchased...
-
Food To Go is a local catering service. Conceptually, when should Food To Go recognize revenue from its catering service? a. At the date the invoice is mailed to the customer b. At the date the...
-
The accounts in the ledger of Speedy Delivery Service contain the following balances on July 31, 2006. Instructions Prepare a trial balance with the accounts arranged as illustrated in the chapter...
Study smarter with the SolutionInn App