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Sergio039 [100]
3 years ago
9

Norris Co. has developed an improved version of its most popular product. To get this improvement to the market, will cost $48 m

illion and will return an additional $13.5 million for 5 years in net cash flows. The firm’s debt-equity ratio is .25, the cost of equity is 13 percent, the pretax cost of debt is 9 percent, and the tax rate is 30 percent. What is the net present value of this proposed project?
Business
1 answer:
Lorico [155]3 years ago
3 0

Answer:

$1.0725 Million

Explanation:

So now

Net Present Value =  Annuity value of the even cash inflow - Investment

Here

Investment is $48 Million

Annuity Value of $13.5 Million Cash Inflow = $13.5 Million * Annuity factor for 5 years at 11.66%

Annuity factor  = (1 -  (1 + r)^ -n) / r

Here

r is 11.66% (Step1) and n is 5 years

Annuity Factor = (1 - (1 + 11.66%)^-5) / 11.66%

Annuity Factor = 3.635

By putting values in the above equation, we have:

Net Present Value = $13.5 Million * 3.635  -  $48 Million

NPV = $1.0725 Million

Step1: Find r which Weighted average cost of capital (WACC)

Weighted Average Cost of capital  

= Value of Debt / (V of debt + V of equity) * After tax cost of debt      PLUS

(Value of equity (Value of Debt / (V of debt + V of equity)  * cost of equity

Here

Post tax cost of debt = Pre tax cost of debt * (1 + Tax rate)

Post tax cost of debt = 9% * (1- 30%) = 6.3%

The debt to equity ratio is 25% which means equity is 100% and debt is 25%.

So

Value of debt is 25%

value of equity is 100%

and total value of capital structure is 125%

This means

WACC = (25% / 125% * 6.3%) + (100% / 125% * 13%)

= 1.26% + 10.4% = 11.66%

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goldenfox [79]

Answer: uniqueness

Explanation:

8 0
2 years ago
Based on the following information, prepare the bank reconciliation for Cougar Corp. as of December 31. A. On December 31, Couga
True [87]

Answer and Explanation:

The Preparation of bank reconciliation for Cougar Corp. as of December 31 is shown below:-

                                         <u>Cougar Corp.</u>

                                    <u>Bank reconciliation</u>

                          <u>For the year ended December 31</u>

<u>Particulars                                                Amount</u>

Bank balance Dec 31                            $24,575

Add: Deposit in transit                            $2,500

Less:

Outstanding checks #302          ($180)

Outstanding checks #303          ($95)

Outstanding checks #304          ($25)     ($300)

Bank balance adjusted                             $26,775

Cash balance on 31 Dec                             $26,504

Add: EFT from customer             $1,700

Add: Interest income                   $21            $1,721

Less: Posting error

($5,400 - $4,500)                         $900

Less: NSF check                            $500     $1,400

Book balance adjusted                               $26,775

Hence, the bank balance and the book balance are matched

8 0
2 years ago
A partial listing of costs incurred at Gilhooly Corporation during September appears below: Direct materials $ 162,000 Utilities
sergejj [24]

Answer:

Manufacturing overhead=  $96,000

Explanation:

Giving the following information:

Utilities, factory $ 11,000

Indirect labor $ 30,000

Depreciation of production equipment $ 51,000

<u>The manufacturing overhead includes all indirect costs regarding production. </u>

<u></u>

Manufacturing overhead= 11,000 + 30,000 + 51,000

Manufacturing overhead=  $96,000

8 0
3 years ago
Blossom Company purchased a delivery truck for $32,000 on July 1, 2022. The truck has an expected salvage value of $4,000, and i
Nookie1986 [14]

The straight line depreciation expense in 2022 is $1500.

The straight line depreciation expense in 2023 is $3000.

<h3>What is the depreciation expense in 2022 and 2023?</h3>

The striaght line depreciation method spreads out the depreciation expense equally over the useful life of the project.

Straight line depreciation expense = (Cost of asset - Salvage value) / useful life

($32,000 - $4,000) / 8 = $3000

The depreciation expense each year would be $3000 except in 2022 when the truck was used for 6 months.

Depreciation expense in 2022 = 6/12(3000) = $1500

To learn more about straight line depreciation, please check: brainly.com/question/6982430

7 0
2 years ago
Precise Machinery is analyzing a proposed project. The company expects to sell 7,500 units, ±10 percent. The expected variable c
statuscvo [17]

Answer:

$2,703,940

Explanation:

Calculation for the operating cash flow based on this analysis

Particulars Amount

Sales amount 6,375,000

(850*7,500)

Less vaiable cost 2,355,000

(314*7,500)

Less Fixed cost 647,000

Less Depreciation 187,000

PBT 3,186,000

Tax 21% 669,060

(21%*3,186,000)

PAT 2,516,940

(3,186,000-669,060)

Add: Depreciation 187,000

Operating cash flow $2,703,940

(2,516,940+187,000)

Therefore the operating cash flow based on this analysis will be $2,703,940

4 0
3 years ago
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