A 4-year project is expected to generate annual sales of 30,000 units at a price of $50.00 per unit and a variable cost of $38.00 per unit. The equipment necessary for the project will cost $205,000 and will be depreciated on a straight-line basis over the life of the project. Fixed costs are $250,000 per year and the tax rate is 28.00 percent. How sensitive is the operating cash flow to a $1 change in the per unit variable cost? Answer

A 4-year project is expected to generate annual sales of 30,000 units at a price of $50.00 per unit and a variable cost of $38.00 per unit. The equipment necessary for the project will cost $205,000 and will be depreciated on a straight-line basis over the life of the project. Fixed costs are $250,000 per year and the tax rate is 28.00 percent. How sensitive is the operating cash flow to a $1 change in the per unit variable cost? Answer

Name: A 4-year project is expected to generate annual sales of 30,000 units
Uploaded: 2024-03-20T06:50:59.000Z
Channel: Bartleby
Description: A 4-year project is expected to generate annual sales of 30,000 units at aprice of $50.00 per unit and a variable cost of $38.00 per unit. Theequipment necessary for the project will cost $205,000 and will bedepreciated on a straight-line basis over

EBK CONTEMPORARY FINANCIAL MANAGEMENT

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter9: Capital Budgeting And Cash Flow Analysis

Section: Chapter Questions

Problem 5P

See similar textbooks

Similar questions

Jasmine Manufacturing is considering a project that will require an initial investment of $52,000 and is expected to generate future cash flows of $10,000 for years 1 through 3, $8,000 for years 4 and 5, and $2,000 for years 6 through 10. What is the payback period for this project?
Redbird Company is considering a project with an initial investment of $265,000 in new equipment that will yield annual net cash flows of $45,800 each year over its seven-year life. The companys minimum required rate of return is 8%. What is the internal rate of return? Should Redbird accept the project based on IRR?
Roberts Company is considering an investment in equipment that is capable of producing more efficiently than the current technology. The outlay required is 2,293,200. The equipment is expected to last five years and will have no salvage value. The expected cash flows associated with the project are as follows: Required: 1. Compute the projects payback period. 2. Compute the projects accounting rate of return. 3. Compute the projects net present value, assuming a required rate of return of 10 percent. 4. Compute the projects internal rate of return.
Project S has a cost of $10,000 and is expected to produce benefits (cash flows) of $3,000 per year for 5 years. Project L costs $25,000 and is expected to produce cash flows of $7,400 per year for 5 years. Calculate the two projects’ NPVs, IRRs, MIRRs, and PIs, assuming a cost of capital of 12%. Which project would be selected, assuming they are mutually exclusive, using each ranking method? Which should actually be selected?
Buena Vision Clinic is considering an investment that requires an outlay of 600,000 and promises a net cash inflow one year from now of 810,000. Assume the cost of capital is 10 percent. Required: 1. Break the 810,000 future cash inflow into three components: a. The return of the original investment b. The cost of capital c. The profit earned on the investment 2. Now, compute the present value of the profit earned on the investment. 3. Compute the NPV of the investment. Compare this with the present value of the profit computed in Requirement 2. What does this tell you about the meaning of NPV?
A project with a life of 6 years is expected to provide annual sales of $260,000 and costs of $173,000. The project will require an investment in equipment of $490,000, which will be depreciated on a straight-line method over the life of the project. You feel that both sales and costs are accurate to +/-15 percent. The tax rate is 21 percent. What is the annual operating cash flow for the best-case scenario?
A 7-year project is expected to provide annual sales of $221,000 with costs of $97,500. The equipment necessary for the project will cost $360,000 and will be depreciated on a straight-line method over the life of the project. You feel that both sales and costs are accurate to +/-15 percent. The tax rate is 35 percent. What is the annual operating cash flow for the worst-case scenario?
A 9-year project is expected to generate annual sales of 189,000 with costs of $93,500. The equipment necessary for the project will cost $320,000 and will be depreciated on a straight-line method over the life of the project. You feel that both sales and costs are accurate to +/-15 percent. The tax rate is 21 percent. What is the annual operating cash flow for the worst-case scenario?
A 9-year project is expected to provide annual sales of $225,000 with costs of $98,000. The equipment necessary for the project will cost $365,000 and will be depreciated on a straight- line method over the life of the project. You feel that both sales and costs are accurate to +/-10 percent. The tax rate is 21 percent. What is the annual operating cash flow for the worst- case scenario? Multiple Choice $111,802 $56,820 $79,942 $54,102 $83,330
A 7-year project is expected to provide annual sales of $221,000 with costs of $97,500. The equipment necessary for the project will cost $360,000 and will be depreciated on a straight-line method over the life of the project. You feel that both sales and costs are accurate to +/-15 percent. The tax rate is 21 percent. What is the annual operating cash flow for the worst-case scenario? Multiple Choice O $49,221 $129,329 $77,946 $44,504 $70,623
A project with a life of 7 years is expected to provide annual sales of $270,000 and costs of $181,000. The project will require an investment in equipment of $505,000, which will be depreciated on a straight-line method over the life of the project. You feel that both sales and costs are accurate to +/-10 percent. The tax rate is 21 percent. What is the annual operating cash flow for the best-case scenario? Multiple Choice O O $80,460 $95,907 $82,497 $55,197 $121,089
An investment has an initial cost of $3.2 million. This investment will be depreciated by $900,000 a year over the 3-year life of the project. Should this project be accepted based on the average accounting rate of return if the required rate is 10.5 percent? Why or why not? Net Income $211.700 186.400 Year 165,500 O Yes; because the AAR is 10.5 percent O Yes; because the AAR is less than 10.5 percent O Yes; because the AAR is greater than 10.5 percent O No; because the AAR is greater than 10.5 percent O No; because the AAR is less than 10.5 percent