Answered

Get the answers you need at Westonci.ca, where our expert community is dedicated to providing you with accurate information. Get immediate and reliable solutions to your questions from a community of experienced professionals on our platform. Our platform provides a seamless experience for finding reliable answers from a network of experienced professionals.

Consider a project to supply Detroit with 20,000 tons of machine screws annually for automobile production. You will need an initial $3,200,000 investment in threading equipment to get the project started; the project will last for 4 years. The accounting department estimates that annual fixed costs will be $700,000 and that variable costs should be $190 per ton; accounting will depreciate the initial fixed asset investment straight-line to zero over the 4-year project life. It also estimates a salvage value of $350,000 after dismantling costs. The marketing department estimates that the automakers will let the contract at a selling price of $310 per ton. The engineering department estimates you will need an initial net working capital investment of $320,000. You require a return of 13 percent and face a marginal tax rate of 22 percent on this project.

Required:
a. What is the estimated OCF for this project?
b. What is the estimated NPV for this project?

Sagot :

jepessoa

Answer:

cash flow year 0 = -$3,200,00 - $320,000 = -$3,520,000

cash flow year 1 = [($2,400,000 - $700,000 - $800,000) x (1 - 22%)] + $800,000 = $1,502,000

cash flow year 2 = [($2,400,000 - $700,000 - $800,000) x (1 - 22%)] + $800,000 = $1,502,000

cash flow year 3 = [($2,400,000 - $700,000 - $800,000) x (1 - 22%)] + $800,000 = $1,502,000

cash flow year 4 = [($2,400,000 - $700,000 - $800,000) x (1 - 22%)] + $800,000 + [$350,000 x (1 - 22%)] + $320,000 = $2,095,000

NPV using a 13% discount rate = $1,311,354

Thank you for your visit. We are dedicated to helping you find the information you need, whenever you need it. We appreciate your time. Please revisit us for more reliable answers to any questions you may have. Find reliable answers at Westonci.ca. Visit us again for the latest updates and expert advice.