6:04IMG_0743.jpgXYou are the CFO of Carla Vista, Inc., a retailer of the exercise machine Slimbody6 and related accessories. Your firm is considering opening up a new store in Los Angeles. The store will have alife of 20 years. It will generate annual sales of 4,400 exercise machines, and the price of each machine is $2,500. The annual sales of accessories will be $600,000, and the operatingexpenses of running the store, including labor and rent, will amount too 50 percent of the revenues from the exercise machines. The initial investment in the store will equal $33,500,000 andwill be fully depreciated on a straight-line basis over the 20-year life of the store. Your firm will need to invest $2,500,000 in additional working capital immediately, and recover it at the endof the investment. Your firm's marginal tax rate is 30 percent. The opportunity cost of opening up the store is 17.40 percent. What are the incremental free cash flows from this project at thebeginning of the project as well as in years 1-19 and 20? (Do not round intermediate calculations. Round NPV answer to 2 decimal places, e.g. 5,265.25 and all other answers to thenearest dollar, e.g. 5,265.)Incremental cash flow at the beginning of the project$Incremental cash flow in the years 1-19Incremental cash flow in the year 20NPV of the projectShould you approve it?the projectYou

Question
Asked Oct 20, 2019
12 views
6:04
IMG_0743.jpg
X
You are the CFO of Carla Vista, Inc., a retailer of the exercise machine Slimbody6 and related accessories. Your firm is considering opening up a new store in Los Angeles. The store will have a
life of 20 years. It will generate annual sales of 4,400 exercise machines, and the price of each machine is $2,500. The annual sales of accessories will be $600,000, and the operating
expenses of running the store, including labor and rent, will amount too 50 percent of the revenues from the exercise machines. The initial investment in the store will equal $33,500,000 and
will be fully depreciated on a straight-line basis over the 20-year life of the store. Your firm will need to invest $2,500,000 in additional working capital immediately, and recover it at the end
of the investment. Your firm's marginal tax rate is 30 percent. The opportunity cost of opening up the store is 17.40 percent. What are the incremental free cash flows from this project at the
beginning of the project as well as in years 1-19 and 20? (Do not round intermediate calculations. Round NPV answer to 2 decimal places, e.g. 5,265.25 and all other answers to the
nearest dollar, e.g. 5,265.)
Incremental cash flow at the beginning of the project
$
Incremental cash flow in the years 1-19
Incremental cash flow in the year 20
NPV of the project
Should you approve it?
the project
You
help_outline

Image Transcriptionclose

6:04 IMG_0743.jpg X You are the CFO of Carla Vista, Inc., a retailer of the exercise machine Slimbody6 and related accessories. Your firm is considering opening up a new store in Los Angeles. The store will have a life of 20 years. It will generate annual sales of 4,400 exercise machines, and the price of each machine is $2,500. The annual sales of accessories will be $600,000, and the operating expenses of running the store, including labor and rent, will amount too 50 percent of the revenues from the exercise machines. The initial investment in the store will equal $33,500,000 and will be fully depreciated on a straight-line basis over the 20-year life of the store. Your firm will need to invest $2,500,000 in additional working capital immediately, and recover it at the end of the investment. Your firm's marginal tax rate is 30 percent. The opportunity cost of opening up the store is 17.40 percent. What are the incremental free cash flows from this project at the beginning of the project as well as in years 1-19 and 20? (Do not round intermediate calculations. Round NPV answer to 2 decimal places, e.g. 5,265.25 and all other answers to the nearest dollar, e.g. 5,265.) Incremental cash flow at the beginning of the project $ Incremental cash flow in the years 1-19 Incremental cash flow in the year 20 NPV of the project Should you approve it? the project You

fullscreen
check_circle

Expert Answer

Step 1

The initial investment cost of store is $33,500,000.

According to straight line depreciation, the annual depreciation is calculated below:

fullscreen
Step 2

Cash outflow at the beginning of project is calculated below:

help_outline

Image Transcriptionclose

Cash outlfow Initial investment cost+ Required additional working capital =$33,500,000 S$2,500, 000 $36,000,000

fullscreen
Step 3

Annual revenue is cal...

help_outline

Image Transcriptionclose

Annual sale of exercise machine Annual revenue | +Annual sale of accessories xPrice of each machine (S4,400 x $2,500) + $600,000 = $11,000,000+ $600,000 = $11,600,000

fullscreen

Want to see the full answer?

See Solution

Check out a sample Q&A here.

Want to see this answer and more?

Solutions are written by subject experts who are available 24/7. Questions are typically answered within 1 hour.*

See Solution
*Response times may vary by subject and question.
Tagged in

Business

Finance

Other

Related Finance Q&A

Find answers to questions asked by student like you
Show more Q&A
add
question_answer

Q: An investment pays $2,100 per year for the first 7 years, $4,200 per year for the next 7 years, and ...

A: The discount rate is 8.20% compounding quarterly. The cash flows have a periodicity of 1 year. Hence...

question_answer

Q: Teaser Rate Mortgage A mortgage broker is offering a 30-year mortgage with a teaser rate. In the fir...

A: Effective interest rate can be described as the interest rate gained or paid in actual on a project....

question_answer

Q: The New Fund had average daily assets of $3.2 billion in the past year.  The fund sold $500 million ...

A: a.Given,Average Daily Assets = $3,200,000,000Fund Sold = $500,000,000a.Given,Average Daily Assets = ...

question_answer

Q: You expect to receive $25,000 at graduation in two years. You plan on investing it at 9 percent unti...

A: Let's say we have to wait for n years once you get the money at graduation, which itself is two year...

question_answer

Q: What is the future value of $7,200 deposited at the beginning of each year for 7 years earning 8% in...

A: Calculation of Future Value:The future value is $69,383.72.Excel Spreadsheet:

question_answer

Q: You have borrowed $45,000 on margin to buy shares in Tencent, which is now selling at $120 per share...

A: The part (b) of this question cannot be answer as the data provided is only for the shares of Compan...

question_answer

Q: You deposit $3000 in an account that pays 88​% interest compounded semiannually. After 33 ​years, th...

A: Amount deposited, P = $ 3,000Future value of P deposited in an account offering annual interest rate...

question_answer

Q: New-Project Analysis Madison Manufacturing is considering a new machine that costs $350,000 and woul...

A: As per the guidelines, we can answer the first question as it has multiple sub-parts. Request you to...

question_answer

Q: New-Project Analysis Madison Manufacturing is considering a new machine that costs $350,000 and woul...

A: As per the authoring guidelines, we should answer first question only if multiple questions posted u...