You must analyze a potential new product-a caulking compound that Cory Materials' R&D people developed for use in the residential construction industry. Cory's marketing manager thinks they can sell 115,000 tubes per year at a price of $3.25 each for 3 years, after which the product will be obsolete. The required equipment would cost $150,000, plus another $25,000 for shipping and installation. Current assets (receivables and inventories) would increase by $35,000, while current liabilities (accounts payable and accruals) would rise by $15,000. Variable cost per unit is $1.95, fixed costs be $70,000 per year, and fixed assets would be depreciated under MACRS with a 3-year life. [33%, 45%, 15%, 7%), when production ceases after 3 years, the equipment should have a maket value of $15,000. Cory's tax rate is 40%, and it uses a 10% WACC for average-risk projects g. If the risk of the project under consideration is greater than the risk of the company as a whole, would you expect the NPV to be: higher, lower, unchanged when compared to a project of average risk? circle the correct answer.] h. If Cory's management accepts a project that is riskier than the company as a whole, will Cory's cost of capital rise, fall, remain unchanged? circle the correct answer.]
You must analyze a potential new product-a caulking compound that Cory Materials' R&D people developed for use in the residential construction industry. Cory's marketing manager thinks they can sell 115,000 tubes per year at a price of $3.25 each for 3 years, after which the product will be obsolete. The required equipment would cost $150,000, plus another $25,000 for shipping and installation. Current assets (receivables and inventories) would increase by $35,000, while current liabilities (accounts payable and accruals) would rise by $15,000. Variable cost per unit is $1.95, fixed costs be $70,000 per year, and fixed assets would be depreciated under MACRS with a 3-year life. [33%, 45%, 15%, 7%), when production ceases after 3 years, the equipment should have a maket value of $15,000. Cory's tax rate is 40%, and it uses a 10% WACC for average-risk projects g. If the risk of the project under consideration is greater than the risk of the company as a whole, would you expect the NPV to be: higher, lower, unchanged when compared to a project of average risk? circle the correct answer.] h. If Cory's management accepts a project that is riskier than the company as a whole, will Cory's cost of capital rise, fall, remain unchanged? circle the correct answer.]
Chapter11: Cash Flow Estimation And Risk Analysis
Section: Chapter Questions
Problem 1cM
Related questions
Question
You must analyze a potential new product-a caulking compound that Cory Materials' R&D people developed for use in the residential construction industry. Cory's marketing manager thinks they can sell 115,000 tubes per year at a price of $3.25 each for 3 years, after which the product will be obsolete. The required equipment would cost $150,000, plus another $25,000 for shipping and installation. Current assets (receivables and inventories) would increase by $35,000, while current liabilities (accounts payable and accruals) would rise by $15,000. Variable cost per unit is $1.95, fixed costs be $70,000 per year, and fixed assets would be depreciated under MACRS with a 3-year life. [33%, 45%, 15%, 7%), when production ceases after 3 years, the equipment should have a maket value of $15,000. Cory's tax rate is 40%, and it uses a 10% WACC for average-risk projects g. If the risk of the project under consideration is greater than the risk of the company as a whole, would you expect the NPV to be: higher, lower, unchanged when compared to a project of average risk? circle the correct answer.] h. If Cory's management accepts a project that is riskier than the company as a whole, will Cory's cost of capital rise, fall, remain unchanged? circle the correct answer.]
Expert Solution
This question has been solved!
Explore an expertly crafted, step-by-step solution for a thorough understanding of key concepts.
Step by step
Solved in 2 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
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
Excel Applications for Accounting Principles
Accounting
ISBN:
9781111581565
Author:
Gaylord N. Smith
Publisher:
Cengage Learning
Intermediate Financial Management (MindTap Course…
Finance
ISBN:
9781337395083
Author:
Eugene F. Brigham, Phillip R. Daves
Publisher:
Cengage Learning