You are the CFO of Oriole, Inc., a retailer of the exercise machine Slimbody6 and related accessories. Your firm is considering opening up a new store in Los Angeles. The store will have a life of 20 years. It will generate annual sales of 4,000 exercise machines, and the price of each machine is $2,500. The annual sales of accessories will be $600,000, and the operating expenses of running the store, including labor and rent, will amount to 50 percent of the revenues from the exercise machines. The initial investment in the store will equal $30,900,000 and will be fully depreciated on a straight-line basis over the 20-year life of the store. Your firm will need to invest $1,000,000 in additional working capital immediately, and recover it at the end of the investment. Your firm's marginal tax rate is 30 percent. The opportunity cost of opening up the store is 10.80 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 calculations. Round NPV answer to 2 decimal places, e.g. 5,265.25 and all other answers to the nearest dollar, e.g. 5,265.) Incremental cash flow at the beginning of the project $ $ Incremental cash flow in the years 1-19 $ Incremental cash flow in the year 20 $ NPV of the project Should you approve it? the project. You tA TA TA
You are the CFO of Oriole, Inc., a retailer of the exercise machine Slimbody6 and related accessories. Your firm is considering opening up a new store in Los Angeles. The store will have a life of 20 years. It will generate annual sales of 4,000 exercise machines, and the price of each machine is $2,500. The annual sales of accessories will be $600,000, and the operating expenses of running the store, including labor and rent, will amount to 50 percent of the revenues from the exercise machines. The initial investment in the store will equal $30,900,000 and will be fully depreciated on a straight-line basis over the 20-year life of the store. Your firm will need to invest $1,000,000 in additional working capital immediately, and recover it at the end of the investment. Your firm's marginal tax rate is 30 percent. The opportunity cost of opening up the store is 10.80 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 calculations. Round NPV answer to 2 decimal places, e.g. 5,265.25 and all other answers to the nearest dollar, e.g. 5,265.) Incremental cash flow at the beginning of the project $ $ Incremental cash flow in the years 1-19 $ Incremental cash flow in the year 20 $ NPV of the project Should you approve it? the project. You tA TA TA
Chapter11: Cash Flow Estimation And Risk Analysis
Section: Chapter Questions
Problem 1gM
Related questions
Question
Transcribed Image Text:You are the CFO of Oriole, Inc., a retailer of the exercise machine Slimbody6 and related accessories. Your firm is considering opening up a new store in Los Angeles. The store will have a life
of 20 years. It will generate annual sales of 4,000 exercise machines, and the price of each machine is $2,500. The annual sales of accessories will be $600,000, and the operating expenses of
running the store, including labor and rent, will amount to 50 percent of the revenues from the exercise machines. The initial investment in the store will equal $30,900,000 and will be fully
depreciated on a straight-line basis over the 20-year life of the store. Your firm will need to invest $1,000,000 in additional working capital immediately, and recover it at the end of the
investment. Your firm's marginal tax rate is 30 percent. The opportunity cost of opening up the store is 10.80 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 calculations. Round NPV answer to 2 decimal places, e.g. 5,265.25 and all other answers to the
nearest dollar, e.g. 5,265.)
Incremental cash flow at the beginning of the project
$
$
Incremental cash flow in the years 1-19
$
Incremental cash flow in the year 20
$
NPV of the project
Should you approve it?
the project.
You
tA
TA
TA
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 5 steps with 2 images
Recommended textbooks for you
EBK CONTEMPORARY FINANCIAL MANAGEMENT
Finance
ISBN:
9781337514835
Author:
MOYER
Publisher:
CENGAGE LEARNING - CONSIGNMENT
Cornerstones of Cost Management (Cornerstones Ser…
Accounting
ISBN:
9781305970663
Author:
Don R. Hansen, Maryanne M. Mowen
Publisher:
Cengage Learning
EBK CONTEMPORARY FINANCIAL MANAGEMENT
Finance
ISBN:
9781337514835
Author:
MOYER
Publisher:
CENGAGE LEARNING - CONSIGNMENT
Cornerstones of Cost Management (Cornerstones Ser…
Accounting
ISBN:
9781305970663
Author:
Don R. Hansen, Maryanne M. Mowen
Publisher:
Cengage Learning
Intermediate Financial Management (MindTap Course…
Finance
ISBN:
9781337395083
Author:
Eugene F. Brigham, Phillip R. Daves
Publisher:
Cengage Learning
Excel Applications for Accounting Principles
Accounting
ISBN:
9781111581565
Author:
Gaylord N. Smith
Publisher:
Cengage Learning