Answered: You are the CFO of Carla Vista, Inc.a…

EBK CONTEMPORARY FINANCIAL MANAGEMENT

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter9: Capital Budgeting And Cash Flow Analysis

Section: Chapter Questions

Problem 8P

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Question

You are the CFO of Carla Vista, Inc.a retailer of the exercise machine Carla Vista6 and related accessoriesYour firm is considering opening a new store in Los AngelesThe store will have a life of 20 yearsIt will generate annual sales of 5,900 exercise machinesand the price of each machine is $2,950. The annual sales of accessories will be $600,000, and the operating expenses of running the stor including labor and rentwill amount to 50 percent of the revenues from the exercise machines. The initial investment in the store wi equal $26,800,000 and will be fully depreciated on a straightline basis over the 20-year life of the storeYour firm will need to invest $3,000,000 in additional working capital immediately and recover it at the end of the investmentYour firm's marginal tax rate is 30 percent. The opportunity cost of opening up the store is 13.00 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 calculationsRound NPV answer to 2 decimal places, eg. 5,275.25 and all other answers to decimal places, 5,275)

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