Question

Example 1: You are considering expanding your product line. You feel you can sell 100,000 of...

Example 1:
You are considering expanding your product line. You feel you can sell 100,000 of these products per year for 4 years (after which time this project is expected to shut down). The product will sell for $6 each, with variable costs of $3 for each one produced, while annual fixed costs associated with production will be $90,000. In addition, there will be a $200,000 initial expenditure associated with the purchase of new production equipment. It assumed that this initial expenditure will be depreciated using the simplified straight-line method down to zero over 4 years .This project will also require a one-time initial investment of $30,000 in net working capital associated with inventory. Finally, assume that the firm’s marginal tax rate is 34 percent.

Please indicate how to solve this in a step by step breakdown using non-excel form, TI calculator steps are fine. Because future questions might be modeled off this. Thank you :)

Homework Answers

Answer #1
Sales (100,000 units at $6/unit) $600,000.00
Less: ?? Variable costs (variable cost $3.00/unit) -$300,000.00
Less: ?? Fixed costs -$90,000.00
Less: ?? Depreciation ($200,000/4 years) -$50,000.00
EBIT $160,000.00
Taxes: (taxed at 34%) -$54,400.00
Net Income $105,600.00
Add: Depreciation $50,000.00
Net Income $155,600.00
Year Cash Flow
0 -$230,000.00
1 $155,600.00
2 $155,600.00
3 $155,600.00
4 $185,600.00
Initial Investment Year 0 = ($200000+$30,000) -$230,000.00
Year 4 = $155,600 + 30,000 (WC) $185,600.00
Know the answer?
Your Answer:

Post as a guest

Your Name:

What's your source?

Earn Coins

Coins can be redeemed for fabulous gifts.

Not the answer you're looking for?
Ask your own homework help question
Similar Questions
Cash Flow Estimation: Example 1: You are considering expanding your product line. You feel you can...
Cash Flow Estimation: Example 1: You are considering expanding your product line. You feel you can sell 100,000 of these products per year for 4 years (after which time this project is expected to shut down). The product will sell for $6 each, with variable costs of $3 for each one produced, while annual fixed costs associated with production will be $90,000. In addition, there will be a $200,000 initial expenditure associated with the purchase of new production equipment. It...
(Calculating project cash flows and​ NPV)  You are considering expanding your product line that currently consists...
(Calculating project cash flows and​ NPV)  You are considering expanding your product line that currently consists of skateboards to include​ gas-powered skateboards, and you feel you can sell 8 comma 000 of these per year for 10 years​ (after which time this project is expected to shut down with​ solar-powered skateboards taking​ over). The gas skateboards would sell for ​$110 each with variable costs of ​$50 for each one​ produced, and annual fixed costs associated with production would be ​$200,000....
You are considering launching a new product, and you believe you can sell 5000 these per...
You are considering launching a new product, and you believe you can sell 5000 these per year for 5 years after which time this product line will shut down. The product would sell for $100 each, with variable costs of $60 for each one produced, and annual fixed costs associated with production would be $100,000. In addition, there would be a $250000 initial expenditure associated with the purchase of new production equipment. It is assumed this initial expenditure will be...
At present, Solartech Skateboards is considering expanding its product line to include gas-powered skateboards; however, it...
At present, Solartech Skateboards is considering expanding its product line to include gas-powered skateboards; however, it is questionable how well they will be received by skateboarders. Although you feel there is a 60 percent chance you will sell 10000 of these per year for 10 years (after which time this project is expected to shut down because solar-powered skateboards will become more popular), you also recognize that there is a 20 percent chance that you will only sell 4000 and...
At present, Solartech Skateboards is considering expanding its product line to include gas-powered skateboards. There would...
At present, Solartech Skateboards is considering expanding its product line to include gas-powered skateboards. There would be $1 million initial expenditure associated with the purchase of new production equipment. After 5 years (when the project is expected to terminate), the equipment could be sold for $60,000 (estimated). Because of the number of stores that will need inventory, the working-capital requirements are the same regardless of the level of sales. This project will require a one-time initial investment of $50,000 in...
Please provide a step by step solution to each question. No excel or table answer. I...
Please provide a step by step solution to each question. No excel or table answer. I want to understand how you solved each step please. A company is considering manufacturing new elliptical trainers. This company did a marketing research 2 years ago, paying $750,000 consulting fees and found that the market is ripe for such a new product. The company feels that they can sell 5,000 of these per year for 5 years (after which time this project is expected...
21. A company is considering a 5-year project that opens a new product line and requires...
21. A company is considering a 5-year project that opens a new product line and requires an initial outlay of $85,000. The assumed selling price is $97 per unit, and the variable cost is $61 per unit. Fixed costs not including depreciation are $20,000 per year. Assume depreciation is calculated using stright-line down to zero salvage value. If the required rate of return is 11% per year, what is the accounting break-even point? (Answer to the nearest whole unit.) 22....
22. A company is considering a 5-year project that opens a new product line and requires...
22. A company is considering a 5-year project that opens a new product line and requires an initial outlay of $80,000. The assumed selling price is $93 per unit, and the variable cost is $66 per unit. Fixed costs not including depreciation are $20,000 per year. Assume depreciation is calculated using stright-line down to zero salvage value. If the required rate of return is 10% per year, what is the cash break-even point? (Answer to the nearest whole unit.)
RET Inc. currently has one product, low-priced stoves. RET Inc.  has decided to sell a new line...
RET Inc. currently has one product, low-priced stoves. RET Inc.  has decided to sell a new line of medium-priced stoves. Sales revenues for the new line of stoves are estimated at $50 million a year. Variable costs are 60% of sales.  The project is expected to last 10 years. Also, non-variable costs are $10,000,000 per year. The company has spent $4,000,000 in research and a marketing study that determined the company will lose (cannibalization) $10 million in sales a year of its...
1. A company is considering a 5-year project to open a new product line. A new...
1. A company is considering a 5-year project to open a new product line. A new machine with an installed cost of $120,000 would be required to manufacture their new product, which is estimated to produce sales of $40,000 in new revenues each year. The cost of goods sold to produce these sales (not including depreciation) is estimated at 49% of sales, and the tax rate at this firm is 27%. If straight-line depreciation is used to calculate annual depreciation,...