What is the termination cash flow (everything except the operational cash flow) at the end of year 5? Use the following information to answer the next 3 questions:Cheese & Cake Factory is looking at a project with the following forecasted sales: first-yearsales quantity of 35,000 with an annual growth rate of 5% over the next 5 years. The sales priceper unit is $40 and will grow at 3% per year. The production costs are expected to be 50% ofthe current year's sales price. The manufacturing equipment to aid this project will have a totalcost (including installation) of $1,000,000. It will be depreciated using MACRS and has aseven-year MACRS life classification (see attached table). Fixed costs are $300,000 per year.The change in net operating working capital is $10,000 and will be recovered at the end of year5. Cheese & Cake Factory has a tax rate of 40%. At the end of year 5, the manufacturingequipment can be sold for $150,000 and the cost of capital for this project is 10%. Year123456789101112131415MARCS Fixed Annual Expense Percentages by Recovery Class3-years33.33%44.45%14.81%7.41%5- years20.00%32.00%19.20%11.52%11.52%5.76%7- years14.29%24.49%17.49%12.49%8.93%8.92%8.93%4.46%10-years10.00%18.00%14.40%11.52%9.22%7.37%6.55%6.55%6.56%6.55%3.28%15-years 20-years5.00%9.50%8.55%7.70%6.93%6.23%5.90%5.90%5.91%5.90%5.91%5.90%5.91%5.90%5.91%3.750%7.219%6.677%6.177%5.713%5.285%4.888%4.522%4.462%4.461%4.462%4.461%4.462%4.461%4.462%

Operating cash flow (OCF) is a measurement of how much money a company generates through regular…

Answered: the termination cash flow (everything…

Business

Finance

the termination cash flow (everything except the operational cash flow) at the end of year 5

Corporate Fin Focused Approach

5th Edition

ISBN:9781285660516

Author:EHRHARDT

Publisher:EHRHARDT

Chapter11: Cash Flow Estimation And Risk Analysis

Section: Chapter Questions

Problem 1dM

See similar textbooks

Related questions

Q: Rosfe Badoy formed a partnership with Enrico Yee on a business dealing with motorcycle parts in…

A: Given Capital Balances Badoy 100,000 Yee 200,000 Total…

Q: alculation of FTE's Calculate Full Time Equivalents (FTE's) for the current pay period based on…

A: Full-time equivalent refers to a unit for measuring the way of work or study during a different…

Q: You have recently been hired to improve the performance of Multiplex Corporation, which has been…

A: Formula = Cash conversation cycle = days saies outstanding + days inventory outstanding - days…

Q: Cari Pump (CP) Company is considering either upgrading or replacing its production equipment. The…

A: The choice between upgrading or replacing the equipment is to be made. You have specifically asked…

Q: Complete the table below. R (P) 1,300 750 10,500 22,700 105,000 R (P) 8,000 3,500 12,000 95,000…

A: Given a certain rate of return, present value (PV) is the current worth of a future sum of money or…

Q: banks

A: And we all are aware that both risk and return go together. So if your firm is making more financing…

Q: Given the cash flow of two projects, A and B: Cash Flow Year 0 Year 1 Year 2 Year 3 Year 4 Year 5…

Q: thomas smith places an order to buy 100 shares of Google. Explain how the order will be processed if…

A: A Market Order refers to an order that will be processed as soon as the market session opens or as…

Q: e basis is defined as the spot price minus the futures price. A trader is hedging the sale of an…

A: Short selling is selling without own the stock but need to buy later on the expiration of period.…

Q: Consider two random variables X and Y. The covariance between these two variables is 1.00. We can…

A: Covariance is a statistic that indicates how closely two variables are related. When two variables…

Q: Determine whether each of the statements (a)–(c) is True or False. A) Underestimation of the…

A: Capital Asset Pricing Model (CAPM) is used to determine the cost of equity of a firm or project…

Q: A snapshot from Violet Flowers Ltd.'s financial information reveals the following for years 2018 and…

A: Free cash flow to the firm refers to the cash available with the company after the adjustment of…

Q: Loki Bhd is a profitable medium-sized toy manufacturer. It is considering an investment in a new…

A: Net present value (NPV) refers to the difference between the present value future stream of cash…

Q: Shannon has an 8-year, $39,178.45, zero-coupon bond with an annual yield-to-maturity (YTM) of 3.14%.…

A: The investment in a zero-coupon bond is considered to be a non-current asset if the maturity period…

Q: An Engineering Company is considering investing in a project. The estimated investment cost for this…

A: The amount that a present investment will gain in value over time when kept in a compound interest…

Q: bank regulations

A: In order to create market transparency between banking institutions and the people and businesses…

Q: The CNX Bank Index is an index comprised of the most liquid and large capitalized Indian Banking…

A: Given, Mean return and unsystematic risk. Rf = 6% By using Sharpe model, we are finding the…

Q: You are interested in purchasing two bonds. Bond A: 15-year $1,000,000 bond, redeemable at 102.5,…

A: We have to prepare the bond amortization schedule. When a bond is priced at premium or discount,…

Q: 7. Suppose you find an investment account that you decide to contribute to every month over the…

A: Future value is calculated to determine the worth of an investment in the future date if a…

Q: XYZ Company Balance Sheet Assets Cash $10.000 Notes Inventory $61,000 Wages Property $110.000…

A: Solution:- Quick ratio means the ratio of quick assets of a firm to the current liabilities. Quick…

Q: xamples of deal-embedded takeover defenses include all of the following EXCEPT: A. Equity…

A: There are many methods to prevent the acquisition or take over by the other companies and they want…

Q: equity

A: While the former is the creditor of a firm, the latter is the owner of a firm, Debt provided must…

Q: Unida Systems has 33 million shares outstanding trading for $10 per share. In addition, Unida has…

A: Cost of capital The rate of return that a firm needs to increase its value in the market is known as…

Q: An installment contract for the purchase of a car requires payments of $206.33 at the end of each…

A: A loan is a financial arrangement in which one or more people, companies, or other entities lend…

Q: Public relations specialists create and maintain a favorable public image for the organization they…

A: The down payment is the cash payment when a purchase is made. The down payment decreases the amount…

Q: Pedro bought a new car today from Barboncito Motors. The former proposed to pay the latter the…

A: EMI or monthly mortgage payments are the fixed amount paid by the borrower to the lender that…

Q: A company enters into a short futures contract to sell 8,000 units of a commodity for $0.50 per…

A: We have a short sale transaction with pre determined initial and maintenance margin. We have to find…

Q: New asset costs $12,000. The ol asset has a book value of $0 and will be sold for $3,000, increase…

A: Initial outlay is amount of investment that is made in assets of the company including the increase…

Q: For a project that has a net investment of $1,500,000 and net cash flows of $400,000 for 5 years; Is…

A: We need to IRR function in excel to calculate Internal Rate of Return(IRR) Formula is…

Q: Mention and explain key macro-economic factors that a team of equity analysts would evaluate in…

A: Macro economic factors are very important in the analysis of the stock market and performance of the…

Q: HOW DOES A BLOCKCHAIN PROVIDES DECENTRALIZD DECISON -MAKING IN FINANCIAL TRANSACTIONS?

A: Blockchain is a mechanism that facilitates digital transactions such as recording transaction…

Q: The details of cost and sales of a firm at an output level of 60,000 units are as follows: Sh. Sales…

A: Concept. 1. Fixed cost. Fixed cost remains same irrespective of level of units or output. 2. Semi…

Q: 6. Tan Company purchased a large server for $46,500. The company paid payment and received a loan…

A: Loans are paid by easy monthly installments and these monthly installments carry the payment for…

Q: Mark Sexwale and Thandi Shilowa, the owners of S&S Air have decided to expand their operations. They…

A: Honor Code: Since you have posted a question with multiple sub-parts, we will solve the first three…

Q: One-year Treasury bills currently earn 3.00 percent. You expect that one year from now, 1-year…

A: Treasury bills are issued by the government, in simple words, the government issues a treasury bill…

Q: Suppose you want to buy a $148,000 home. You found a bank that offers a 30-year loan at 3.1% APR.…

A: The amount of interest paid is greater for a loan that has a longer term. When the loan term is…

Q: Annette commits to a mortgage with an interest rate of 5% compounded monthly for the first 14 years…

A: Particulars Values Payment every semi annual period $ 14,606.00 Interest rate for next 15…

Q: 6. Calculate the short term premium and Refund for the policy (in $$) use Table 19-5 if necissary?…

A: The short rate of insurance is the percentage of the premium that is retained by the insurance…

Q: Pedro deposits four installments in his savings account as follows: BRL 2500 initial deposit…

A: concept. FV = A (1+r)n FV = future value A= deposit amount r= interest rate n= time period.

Q: Regarding the EPS fallacy, which of the following statements is correct: a. When a company issues…

A: Several statements have been made about the EPS fallacy. We have to find the statement that is…

Q: You just settled an insurance claim that calls for increasing payments over a 11-year period. The…

A: Present Value Today's market value of an investment is known as the present value of an investment.…

Q: Sue plans to save $4765, $0, and $5419 at the end of Years 1 to 3, respectively. What will her…

A: Future Value refers to the compounded value of a single cash flow received today, or multiple cash…

Q: You want to buy a $216,000 home. You plan to pay 5% as a down payment, and take out a 30 year loan…

A: A home indicates the sum borrowed to purchase a new house. A home loan offers funding to afford the…

Q: One of the important components of multinational capital budgeting is to analyze the cash flows…

A: The difference between the current value of cash inflows and outflow of cash over a period of time…

Q: financial institution that invests $100 million into corporate bonds is exposed to which of the…

A: Bond A type of financial instrument that helps companies to raise funds to meet their financial…

Q: ferent Between spot and forward ma

A: In commodity or any assets markets there are many types of markets are there depending on the basis…

Q: able ets 75,000 20,000 45,000

A: The return on total asset is reflective of the ratio which depicts the return on the sum of total…

Q: Embraer of Brazil is one of the two leading global manufacturers of regional jets. (Bombardier of…

A: Here, Amount to be received = USD 80,000,000 Amount paid to foreign suppliers = USD 20,000,000…

Q: When interest is calculated on the principal amount borrowed is known as what A. Annuity B. Simple…

A: The interest is paid by the borrower to the lender in exchange for money provided to the borrower.…

Q: Austin received a 15 year loan of $320,000 to nterest rate on the loan was 2.30% compoun a. What is…

A: Loans are paid easy equal and fixed monthly payments and are very easy to pay and thes payments…

Concept explainers

Operating Cash Flows

A cash flow statement (CFS) helps the company to know the amount of cash at its disposal, the activities that lead to earning cash, and the activities which require cash expenditure for a particular period. The statement represents the liquidity of the company.

Question

What is the termination cash flow (everything except the operational cash flow) at the end of year 5?

Yea
r
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
MARCS Fixed Annual Expense Percentages by Recovery Class
3-years
33.33%
44.45%
14.81%
7.41%
5- years
20.00%
32.00%
19.20%
11.52%
11.52%
5.76%
7- years
14.29%
24.49%
17.49%
12.49%
8.93%
8.92%
8.93%
4.46%
10-years
10.00%
18.00%
14.40%
11.52%
9.22%
7.37%
6.55%
6.55%
6.56%
6.55%
3.28%
15-years 20-years
5.00%
9.50%
8.55%
7.70%
6.93%
6.23%
5.90%
5.90%
5.91%
5.90%
5.91%
5.90%
5.91%
5.90%
5.91%
3.750%
7.219%
6.677%
6.177%
5.713%
5.285%
4.888%
4.522%
4.462%
4.461%
4.462%
4.461%
4.462%
4.461%
4.462%

Expert Solution

This question has been solved!

Explore an expertly crafted, step-by-step solution for a thorough understanding of key concepts.

SEE SOLUTION Check out a sample Q&A here

Introduction,

VIEW

Calculation of terminal cashflow is as follow:

VIEW

Answer

VIEW

Step by step

Solved in 3 steps with 2 images

SEE SOLUTION Check out a sample Q&A here

Knowledge Booster

Learn more about

Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, finance and related others by exploring similar questions and additional content below.

Similar questions

Gardner Denver Company is considering the purchase of a new piece of factory equipment that will cost $420,000 and will generate $95,000 per year for 5 years. Calculate the IRR for this piece of equipment. For further Instructions on internal rate of return in Excel, see Appendix C.
A grocery store is considering the purchase of a new refrigeration unit with an Initial Investment of $412,000, and the store expects a return of $100,000 in year one, $72000 in years two and three, $65,000 in years four and five, and $38,000 in year six and beyond, what is the payback period?
Gina Ripley, president of Dearing Company, is considering the purchase of a computer-aided manufacturing system. The annual net cash benefits and savings associated with the system are described as follows: The system will cost 9,000,000 and last 10 years. The companys cost of capital is 12 percent. Required: 1. Calculate the payback period for the system. Assume that the company has a policy of only accepting projects with a payback of five years or less. Would the system be acquired? 2. Calculate the NPV and IRR for the project. Should the system be purchasedeven if it does not meet the payback criterion? 3. The project manager reviewed the projected cash flows and pointed out that two items had been missed. First, the system would have a salvage value, net of any tax effects, of 1,000,000 at the end of 10 years. Second, the increased quality and delivery performance would allow the company to increase its market share by 20 percent. This would produce an additional annual net benefit of 300,000. Recalculate the payback period, NPV, and IRR given this new information. (For the IRR computation, initially ignore salvage value.) Does the decision change? Suppose that the salvage value is only half what is projected. Does this make a difference in the outcome? Does salvage value have any real bearing on the companys decision?
Towson Industries is considering an investment of $256,950 that is expected to generate returns of $90,000 per year for each of the next four years. What Is the Investments internal rate of return?
Tropical Sweets is considering a project that will cost $70 million and will generate expected cash flows of $30 million per year for 3 years. The cost of capital for this type of project is 10%, and the risk-free rate is 6%. After discussions with the marketing department, you learn that there is a 30% chance of high demand with associated future cash flows of $45 million per year. There is also a 40% chance of average demand with cash flows of $30 million per year as well as a 30% chance of low demand with cash flows of only $15 million per year. What is the expected NPV?
The Rodriguez Company is considering an average-risk investment in a mineral water spring project that has an initial after-tax cost of 170,000. The project will produce 1,000 cases of mineral water per year indefinitely, starting at Year 1. The Year-1 sales price will be 138 per case, and the Year-1 cost per case will be 105. The firm is taxed at a rate of 25%. Both prices and costs are expected to rise after Year 1 at a rate of 6% per year due to inflation. The firm uses only equity, and it has a cost of capital of 15%. Assume that cash flows consist only of after-tax profits because the spring has an indefinite life and will not be depreciated. a. What is the present value of future cash flows? (Hint: The project is a growing perpetuity, so you must use the constant growth formula to find its NPV.) What is the NPV? b. Suppose that the company had forgotten to include future inflation. What would they have incorrectly calculated as the projects NPV?
A restaurant is considering the purchase of new tables and chairs for their dining room with an initial investment cost of $515,000, and the restaurant expects an annual net cash flow of $103,000 per year. What is the payback period?
Falkland, Inc., is considering the purchase of a patent that has a cost of $50,000 and an estimated revenue producing life of 4 years. Falkland has a cost of capital of 8%. The patent is expected to generate the following amounts of annual income and cash flows: A. What is the NPV of the investment? B. What happens if the required rate of return increases?
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?
If a copy center is considering the purchase of a new copy machine with an initial investment cost of $150,000 and the center expects an annual net cash flow of $20,000 per year, what is the payback period?
If a garden center is considering the purchase of a new tractor with an initial investment cost of $120,000, and the center expects a return of $30,000 in year one, $20,000 in years two and three. $15,000 In years four and five, and $10,000 in year six and beyond, what is the payback period?
Your company is planning to purchase a new log splitter for is lawn and garden business. The new splitter has an initial investment of $180,000. It is expected to generate $25,000 of annual cash flows, provide incremental cash revenues of $150,000, and incur incremental cash expenses of $100,000 annually. What is the payback period and accounting rate of return (ARR)?