You are considering adding a new product to one of your firm’s existing product lines which will generate an additional $200,000 in sales per year and will have a margin of 50% (same as the existing group margin). This will entail an increase in Net Working Capital of $10,000 and an investment in property, plant, and equipment of $50,000 per year. Assuming the company pays no tax and any depreciation in that year is negligible, the annual change in Unlevered Free Cash Flows resulting from the addition of the product is: a $40,000 b $50,000 c $90,000 d $100,000 e $10,000
You are considering adding a new product to one of your firm’s existing product lines which will generate an additional $200,000 in sales per year and will have a margin of 50% (same as the existing group margin). This will entail an increase in Net Working Capital of $10,000 and an investment in property, plant, and equipment of $50,000 per year. Assuming the company pays no tax and any depreciation in that year is negligible, the annual change in Unlevered Free Cash Flows resulting from the addition of the product is: a $40,000 b $50,000 c $90,000 d $100,000 e $10,000
Chapter9: Capital Budgeting And Cash Flow Analysis
Section: Chapter Questions
Problem 8P
Related questions
Question
You are considering adding a new product to one of your firm’s existing product lines which will generate an additional $200,000 in sales per year and will have a margin of 50% (same as the existing group margin). This will entail an increase in Net Working Capital of $10,000 and an investment in property, plant, and equipment of $50,000 per year. Assuming the company pays no tax and any
- a
$40,000
- b
$50,000
- c
$90,000
- d
$100,000
-
e$10,000
Expert Solution
This question has been solved!
Explore an expertly crafted, step-by-step solution for a thorough understanding of key concepts.
This is a popular solution!
Trending now
This is a popular solution!
Step by step
Solved in 3 steps
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.Recommended textbooks for you
EBK CONTEMPORARY FINANCIAL MANAGEMENT
Finance
ISBN:
9781337514835
Author:
MOYER
Publisher:
CENGAGE LEARNING - CONSIGNMENT
Intermediate Financial Management (MindTap Course…
Finance
ISBN:
9781337395083
Author:
Eugene F. Brigham, Phillip R. Daves
Publisher:
Cengage Learning
EBK CONTEMPORARY FINANCIAL MANAGEMENT
Finance
ISBN:
9781337514835
Author:
MOYER
Publisher:
CENGAGE LEARNING - CONSIGNMENT
Intermediate Financial Management (MindTap Course…
Finance
ISBN:
9781337395083
Author:
Eugene F. Brigham, Phillip R. Daves
Publisher:
Cengage Learning
Principles of Accounting Volume 2
Accounting
ISBN:
9781947172609
Author:
OpenStax
Publisher:
OpenStax College
Cornerstones of Cost Management (Cornerstones Ser…
Accounting
ISBN:
9781305970663
Author:
Don R. Hansen, Maryanne M. Mowen
Publisher:
Cengage Learning