Question

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 depreciated using the straight-line method down to zero over 5 years. The market value of the equipment at the end of 5 years will be zero. The project will also require a one-time initial investment of $50000 in net working capital associated with inventory, and this working capital investment will be recovered when the project is shut down. Finally, assume the firm’s marginal tax rate is 30%.

a)What is the initial cash outlay associated with this project?

b)What are the annual net cash flows associated with this project for years 1 to 4?

c)What is the terminal cash flow in year 5 (i.e. what is the free cash flow in year 5 plus any additional cash flows associated with termination of the project)?

d)What is the project’s NPV given a 10% required rate of return?

Answer #1

(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....

Example 1:
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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...

At present, Solartech Skateboards is considering expanding its
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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...

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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 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
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Company A is considering launching a new clothing line. The
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Problem 11-01
Investment Outlay
Talbot Industries is considering launching a new product. The
new manufacturing equipment will cost $17 million, and production
and sales will require an initial $1 million investment in net
operating working capital. The company's tax rate is 40%.
What is the initial investment outlay? Write out your answer
completely. For example, 2 million should be entered as
2,000,000.
$
The company spent and expensed $150,000 on research related to
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years. New equipment that is required to produce the new product
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and a $300,000 salvage value and will be sold at the end of year 5
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manufacturing facility, Doce plans to install the equipment in a
building it owns but it is not now using. The building could be
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