Help 1- A project requires an initial investment in equipmentof $90,000 and then requires an initial investment inworking capital of $10,000 (at t = 0). You expect theproject to produce sales revenue of $120,000 per yearfor three years. You estimate manufacturing costs at 60percent of revenues. (Assume all revenues and costsoccur at year-end, i.e., t = 1, t= 2, and t= 3). Theequipment depreciates using straight-line depreciationover three years. At the end of the project, the firm cansell the equipment for $10,000 and also recover theinvestment in net working capital. The corporate taxrate is 21 percent and the cost of capital is 15 percent.Cash flows from the project are%3Dpossible answer: CFo: -90,000;CF1: 12,600; CF2:12,600; CF3: 29,600.CFo: -100,000; CF1: 44,220; CF2: 44,220; CF3:62,120.CFo: -100,000; CF1: 42,600; CF2: 42,600; CF3:42,600.• CFo: -100,000; CF1: 42,600; CF2: 42,600; CF3:49,600.

Information Provided: Revenue = $120,000 Cost = 60% of Revenue Tax = 21% Working capital = 10,000

Answered: Cash flows from the project are

Business

Finance

Cash flows from the project are

EBK CONTEMPORARY FINANCIAL MANAGEMENT

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter9: Capital Budgeting And Cash Flow Analysis

Section: Chapter Questions

Problem 19P

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Concept explainers

Market Efficiency

Market efficiency refers to the market's ability to provide investors with all available information about investment options for buying and selling securities. Market efficiency reflects the true value of securities without undervaluing or overvaluing them. When the quality and quantity of information increase, the market becomes more efficient, allowing it to reduce arbitrage and obtain higher market returns from investment. In a well-functioning market, everyone receives all information completely and immediately at no cost. It opens up a plethora of opportunities for investors to access various investment options.

Question

Help

1- A project requires an initial investment in equipment
of $90,000 and then requires an initial investment in
working capital of $10,000 (at t = 0). You expect the
project to produce sales revenue of $120,000 per year
for three years. You estimate manufacturing costs at 60
percent of revenues. (Assume all revenues and costs
occur at year-end, i.e., t = 1, t= 2, and t= 3). The
equipment depreciates using straight-line depreciation
over three years. At the end of the project, the firm can
sell the equipment for $10,000 and also recover the
investment in net working capital. The corporate tax
rate is 21 percent and the cost of capital is 15 percent.
Cash flows from the project are
%3D
possible answer: CFo: -90,000;CF1: 12,600; CF2:
12,600; CF3: 29,600.
CFo: -100,000; CF1: 44,220; CF2: 44,220; CF3:
62,120.
CFo: -100,000; CF1: 42,600; CF2: 42,600; CF3:
42,600.
• CFo: -100,000; CF1: 42,600; CF2: 42,600; CF3:
49,600.

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