Healthy Foods Inc is considering introducing a new line of dried flowers. The firm expects to be able to generate $ 4 million in revenues from this new line, each year for the next 10 years. Customers who come to buy the flowers often buy the firm’s traditional offerings (fresh fruit and baked goods) and it is anticipated that the revenues on these goods will increase from $ 14 million to $ 17 million as a consequence. The firm has a 40% pre-tax operating margin on all of its products. Assuming a 8-year life, a 10% cost of capital, a 40% tax rate and no salvage value or depreciation, what is the maximum that you would be willing to invest in this new product line?
Healthy Foods Inc is considering introducing a new line of dried flowers. The firm expects to be able to generate $ 4 million in revenues from this new line, each year for the next 10 years. Customers who come to buy the flowers often buy the firm’s traditional offerings (fresh fruit and baked goods) and it is anticipated that the revenues on these goods will increase from $ 14 million to $ 17 million as a consequence. The firm has a 40% pre-tax operating margin on all of its products. Assuming a 8-year life, a 10% cost of capital, a 40% tax rate and no salvage value or depreciation, what is the maximum that you would be willing to invest in this new product line?
Chapter9: Capital Budgeting And Cash Flow Analysis
Section: Chapter Questions
Problem 22P
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Healthy Foods Inc is considering introducing a new line of dried flowers. The firm expects to be able to generate $ 4 million in revenues from this new line, each year for the next 10 years. Customers who come to buy the flowers often buy the firm’s traditional offerings (fresh fruit and baked goods) and it is anticipated that the revenues on these goods will increase from $ 14 million to $ 17 million as a consequence. The firm has a 40% pre-tax operating margin on all of its products. Assuming a 8-year life, a 10% cost of capital, a 40% tax rate and no salvage value or
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