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kati45 [8]
3 years ago
12

Your company is about to undertake a major investment project. The project will require an initial outlay of $100 million for fi

xed assets plus another $50 million for working capital. Tax authorities will allow you to depreciate the fixed assets on a straight-line basis over four years to a salvage value of zero. In fact, however, you expect that you can sell the fixed assets for $25 million at the end of Year 4. You also expect that you can recover your working capital at its book value at that time. You expect that the project will generate $60 million in revenue and $30 million in cash operating expenses (excluding depreciation) during each of the next four years. The corporate tax rate is 40%.
A) What are the cash flows for each year of the project’s life that you would use in conducting an NPV analysis of the project?
B) If the cost of capital is 10%, what is the project’s NPV?
C) What is the minimum price at which you could sell the fixed assets at the end of Year 4 in order for the project to be just acceptable?
Business
1 answer:
Tcecarenko [31]3 years ago
7 0

Answer:

A) initial outlay = $150 million

Cash flow year 1 = [($30 - $25) x 0.6] + $25 = $28

Cash flow year 2 = [($30 - $25) x 0.6] + $25 = $28

Cash flow year 3 = [($30 - $25) x 0.6] + $25 = $28

Cash flow year 4 = [($30 - $25) x 0.6] + $25 + ($25 x 60%) + $50 = $93

B) Using a financial calculator, NPV = -$16.85 million

C) cash flow year 4 should increase by $24.667 million, meaning that the selling price must increase by $$24.667/0.6 = $41.11 million

minimum selling price $25 + $41.11 = $66.11 million

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4 0
3 years ago
Michael Chang buys only tennis rackets during a particular year. During the year in question, the price of all goods rises by 10
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Answer:

Michael does not experience inflation because he only buys Tennis rackets

Explanation:

Inflation is defined as increases in price per unit price.

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6 0
3 years ago
Rediger Inc., a manufacturing Corporation, has provided the following data for the month of June. The balance in the Work in Pro
maw [93]

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$147,400

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5 0
3 years ago
Cynthia, requested a two-week leave from her employer to go on a religious pilgrimage. The pilgrimage was not a requirement of h
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Answer: No. It does not violate Title VII if Cynthia's employer does not grant her the leave.

Explanation:

From the question, we are informed that Cynthia, requested a two-week leave from her employer to go on a religious pilgrimage and that the pilgrimage was not a requirement of her religion, but Cynthia felt it was a calling from God.

Based on the scenario, Title VII is not violated if Cynthia's employer does not grant her the leave. According to the court, when an employee says that based on his or her religious belief, he or she is required to go to a pilgrimage, the person has to prove beyond reasonable doubt.

In this case, her church which is the Roman Catholic didn't call for a pilgrimage as it was her personal choice. Therefore, Title VII is not violated if Cynthia's employer does not grant her the leave.

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3 years ago
Monica heard that as a general rule, she should spend no more than one week's pay on rent. If Monica's salary is $42,068 per yea
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The answer is $809. There are 52 weeks in a year, so $42,068/52 = $809.
8 0
4 years ago
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