Question

2. Winnebagel Corp. currently sells 20000 motor homes per year at $40000 each, and 19300 luxury motor coaches per year at $119400 each. The company wants to introduce a new portable camper to fill out its product line; it hopes to sell 23300 of these campers per year at $22600 each. An independent consultant has determined that if Winnebagel introduces the new campers, it should boost the sales of its existing motor homes by 2800 units per year, and reduce the sales of its motor coaches by 600 units per year. What is the amount to use as the annual sales figure when evaluating this project?

3. Summer Tyme, Inc., is considering a new 3-year expansion project that requires an initial fixed asset investment of $1952000. The fixed asset will be depreciated straight-line to zero over its 3-year tax life, after which time it will be worthless. The project is estimated to generate $2264000 in annual sales, with costs of $1785000. If the tax rate is 0.39 , what is the OCF for this project?

4. An asset used in a 4-year project falls in the 5-year MACRS class (refer to MACRS table on page 277), for tax purposes. The asset has an acquisition cost of $24477000 and will be sold for $6288000 at the end of the project. If the tax rate is 0.29, what is the aftertax salvage value of the asset ?

5. Parker & Stone, Inc., is looking at setting up a new manufacturing plant in South Park to produce garden tools. The company bought some land 12 years ago for $8471000 in anticipation of using it as a warehouse and distribution site, but the company has since decided to rent these facilities from a competitor instead. If the land were sold today, the company would net $3704000. An engineer was hired to study the land at a cost of $883000, and her conclusion was that the land can support the new manufacturing facility. The company wants to build its new manufacturing plant on this land; the plant will cost $6599000 million to build, and the site requires $1033000 worth of grading before it is suitable for construction. What is the proper cash flow amount to use as the initial investment in fixed assets when evaluating this project?

Answer 1

2)

Pre Cannibalization Revenue
Product Category	Units	Price	Revenue
Motor Homes	20000	40000	800000000
Luxury Motor Coaches	19300	119400	2304420000
After introduction of new portable campers, post cannibalization Revenue Analysis
Product Category	Units	Price	Revenue
Portable Campers	23300	22600	526580000
Motor Homes	22800	40000	912000000	Sales Increase by 2800
Luxury Motor Coaches	18700	119400	2232780000	Sales Decrease by 600
			3671360000
Recognized Revenue post canibalization and introduction of new product is 3671360000 or 3.67 billion