Your company has been doing well, reaching $1.02 million in earnings, and is considering launching a...
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Your company has been doing well, reaching $1.02 million in earnings, and is considering launching a new product. Designing the new product has already cost $490,000. The company estimates that it will sell 832,000 units per year for $2.97 per unit and variable non-labor costs will be $1.07 per unit. Production will end after year 3. New equipment costing $1.04 million will be required. The equipment will be depreciated to zero using the 7-year MACRS schedule. You plan to sell the equipment for book value at the end of year 3. Your current level of working capital is $295,000. The new product will require the working capital to increase to a level of $381,000 immediately, then to $397,000 in year 1, in year 2 the level will be $354,000, and finally in year 3 the level will return to $295,000. Your tax rate is 21%. The discount rate for this project is 10.4%. Do the capital budgeting analysis for this project and calculate its NPV. Note: Assume that the equipment is put into use in year 1. Design already happened and is (irrelevant). (Select from the drop-down menu.) According to the 7-year MACRS schedule, depreciation in year 1 will be $ (Round to the nearest dollar.) Depreciation in year 2 will be $ (Round to the nearest dollar.) Depreciation in year 3 will be $ (Round to the nearest dollar.) Complete the capital budgeting analysis for this project below: (Round to the nearest dollar.) Year 0 Year 1 Year 2 Year 3 Sales $ $ $ $ - Cost of Goods Sold Your company has been doing well, reaching $1.02 million in earnings, and is considering launching a new product. Designing the new product has already cost $490,000. The company estimates that it will sell 832,000 units per year for $2.97 per unit and variable non-labor costs will be $1.07 per unit. Production will end after year 3. New equipment costing $1.04 million will be required. The equipment will be depreciated to zero using the 7-year MACRS schedule. You plan to sell the equipment for book value at the end of year 3. Your current level of working capital is $295,000. The new product will require the working capital to increase to a level of $381,000 immediately, then to $397,000 in year 1, in year 2 the level will be $354,000, and finally in year 3 the level will return to $295,000. Your tax rate is 21%. The discount rate for this project is 10.4%. Do the capital budgeting analysis for this project and calculate its NPV. Note: Assume that the equipment is put into use in year 1. Sales -Cost of Goods Sold Gross Profit $ - Depreciation EBIT Year 0 Year 1 $ $ $ Year 2 $ $ $ $ - Tax Incremental Earnings + Depreciation -Incremental Working Capital - Capital Investment Incremental Free Cash Flow The NPV of the project is $ $ $ (Round to the nearest dollar.) Year 3 Your company has been doing well, reaching $1.02 million in earnings, and is considering launching a new product. Designing the new product has already cost $490,000. The company estimates that it will sell 832,000 units per year for $2.97 per unit and variable non-labor costs will be $1.07 per unit. Production will end after year 3. New equipment costing $1.04 million will be required. The equipment will be depreciated to zero using the 7-year MACRS schedule. You plan to sell the equipment for book value at the end of year 3. Your current level of working capital is $295,000. The new product will require the working capital to increase to a level of $381,000 immediately, then to $397,000 in year 1, in year 2 the level will be $354,000, and finally in year 3 the level will return to $295,000. Your tax rate is 21%. The discount rate for this project is 10.4%. Do the capital budgeting analysis for this project and calculate its NPV. Note: Assume that the equipment is put into use in year 1. Design already happened and is (irrelevant). (Select from the drop-down menu.) According to the 7-year MACRS schedule, depreciation in year 1 will be $ (Round to the nearest dollar.) Depreciation in year 2 will be $ (Round to the nearest dollar.) Depreciation in year 3 will be $ (Round to the nearest dollar.) Complete the capital budgeting analysis for this project below: (Round to the nearest dollar.) Year 0 Year 1 Year 2 Year 3 Sales $ $ $ $ - Cost of Goods Sold Your company has been doing well, reaching $1.02 million in earnings, and is considering launching a new product. Designing the new product has already cost $490,000. The company estimates that it will sell 832,000 units per year for $2.97 per unit and variable non-labor costs will be $1.07 per unit. Production will end after year 3. New equipment costing $1.04 million will be required. The equipment will be depreciated to zero using the 7-year MACRS schedule. You plan to sell the equipment for book value at the end of year 3. Your current level of working capital is $295,000. The new product will require the working capital to increase to a level of $381,000 immediately, then to $397,000 in year 1, in year 2 the level will be $354,000, and finally in year 3 the level will return to $295,000. Your tax rate is 21%. The discount rate for this project is 10.4%. Do the capital budgeting analysis for this project and calculate its NPV. Note: Assume that the equipment is put into use in year 1. Sales -Cost of Goods Sold Gross Profit $ - Depreciation EBIT Year 0 Year 1 $ $ $ Year 2 $ $ $ $ - Tax Incremental Earnings + Depreciation -Incremental Working Capital - Capital Investment Incremental Free Cash Flow The NPV of the project is $ $ $ (Round to the nearest dollar.) Year 3
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Related Book For
Fundamentals Of Corporate Finance
ISBN: 9780135811603
5th Edition
Authors: Jonathan Berk, Peter DeMarzo, Jarrad Harford
Posted Date:
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