CORPORATE FINANCE - CONNECT ACCESS
12th Edition
ISBN: 9781264054893
Author: Ross
Publisher: MCG
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Question
Chapter 6, Problem 2QAP
a.
Summary Introduction
Adequate information:
Initial investment= -$26,300
Sales revenue in Year 1=$13,400
Sales revenue in Year 2=$15,000
Sales revenue in Year 3=$16,400
Sales revenue in Year 4=$12,900
Operating costs in Year 1=$2,900
Operating costs in Year 2=$3,100
Operating costs in Year 3=$4,200
Operating costs in Year 4=$2,800
Initial net working capital spending=$300
Net working capital spending in Year 1=$200
Net working capital spending in Year 2=$225
Net working capital spending in Year 3=$150
Corporate tax rate= 22%
To compute: Incremental net income of investment for each year
Introduction: Net income is the difference between the operating revenue and operating expenses during a financial period. It is computed using an income statement. An income statement is one of the financial statements of a company, that is, prepared to determine the profitability for a period.
b.
Summary Introduction
Adequate information:
Initial investment= $26,300
Sales revenue in Year 1=$13,400
Sales revenue in Year 2=$15,000
Sales revenue in Year 3=$16,400
Sales revenue in Year 4=$12,900
Operating costs in Year 1=$2,900
Operating costs in Year 2=$3,100
Operating costs in Year 3=$4,200
Operating costs in Year 4=$2,800
Depreciation in each year=$6,575
Initial net working capital spending (NWC Initial) =$300
Net working capital spending in Year 1 (NWC Year1) =$200
Net working capital spending in Year 2 (NWC Year2) =$225
Net working capital spending in Year 3 (NWC Year3) =$150
Corporate tax rate= 22%
To compute: Incremental cash flows of investment for each year
Introduction: Cash flows represent the amount of cash received or paid by a business enterprise during a financial period. The cash flows are represented using a cash flow statement.
c.
Summary Introduction
Adequate information:
Initial investment= $26,300
Sales revenue in Year 1=$13,400
Sales revenue in Year 2=$15,000
Sales revenue in Year 3=$16,400
Sales revenue in Year 4=$12,900
Operating costs in Year 1=$2,900
Operating costs in Year 2=$3,100
Operating costs in Year 3=$4,200
Operating costs in Year 4=$2,800
Depreciation in each year=$6,575
Initial net working capital spending=$300
Net working capital spending in Year 1=$200
Net working capital spending in Year 2=$225
Net working capital spending in Year 3=$150
Corporate tax rate= 22%
Discount rate = 12%
To compute:
Introduction: Net present value is the difference between the aggregate
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Revenues generated by a new fad product are forecast as follows:
Year
Revenues
1
$50,000
2
35,000
3
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4
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Thereafter
0
Expenses are expected to be 40% of revenues, and working capital required in each year is expected to be 20% of revenues in the following year. The product requires an immediate investment of $60,000 in plant and equipment.
a. What is the initial investment in the product? Remember working capital.
b. If the plant and equipment are depreciated over 4 years to a salvage value of zero using straight-line depreciation, and the firm’s tax rate is 20%, what are the project cash flows in each year? Assume the plant and equipment are worthless at the end of 4 years.
c. If the opportunity cost of capital is 10%, what is the project's NPV?
d. What is the project IRR?
Revenues generated by a new fad product are forecast as follows:
Year
Revenues
1
60,000
2
40,000
3
30,000
4
10,000
Thereafter
0
Expenses are expected to be 30% of revenues, and working capital required in each year is expected to be 10% of revenues in the following year. The product requires an immediate investment of $81,000 in plant and equipment.
a). What is the inital investment in the product? Rememebr working capital.
b).If the plant and equipment are depreciated over 4 years to a slavage value of zero using straight-line depreciation, and the firm's tax rate is 20%, what are the project cash flows in each year? Assume the plant and equipment are worthless at the end of 4 years.
c). If the opportunity cost of capital is 10%, what is the project's NPV?
d). What is the project IRR?
Chapter 6 Solutions
CORPORATE FINANCE - CONNECT ACCESS
Ch. 6 - Opportunity Cost In the context of capital...Ch. 6 - Prob. 2CQCh. 6 - Incremental Cash Flows Your company currently...Ch. 6 - Depreciation Given the choice, would a firm prefer...Ch. 6 - Prob. 5CQCh. 6 - Prob. 6CQCh. 6 - Equivalent Annual Cost When is EAC analysis...Ch. 6 - Prob. 8CQCh. 6 - Capital Budgeting Considerations A major college...Ch. 6 - To answer the next three questions, refer to the...
Ch. 6 - Prob. 11CQCh. 6 - To answer the next three questions, refer to the...Ch. 6 - Prob. 1QAPCh. 6 - Prob. 2QAPCh. 6 - Calculating Project NPV Down Under Boomerang,...Ch. 6 - Calculating Project Cash Flow from Assets In the...Ch. 6 - Prob. 5QAPCh. 6 - NPV and Bonus Depreciation In the previous...Ch. 6 - Prob. 7QAPCh. 6 - Prob. 8QAPCh. 6 - NPV and Bonus Depreciation In the previous...Ch. 6 - Calculating Salvage Value An asset used in a...Ch. 6 - Calculating NPV Thurston Petroleum is considering...Ch. 6 - Prob. 12QAPCh. 6 - Cost-Cutting Proposals Starset Machine Shop is...Ch. 6 - NPV and Bonus Depreciation In the previous...Ch. 6 - Prob. 15QAPCh. 6 - Prob. 16QAPCh. 6 - NPV and Bonus Depreciation Eggz, Inc., is...Ch. 6 - Prob. 18QAPCh. 6 - Prob. 19QAPCh. 6 - Prob. 20QAPCh. 6 - Prob. 21QAPCh. 6 - Prob. 22QAPCh. 6 - Prob. 23QAPCh. 6 - Prob. 24QAPCh. 6 - Prob. 25QAPCh. 6 - Prob. 26QAPCh. 6 - Prob. 27QAPCh. 6 - Prob. 28QAPCh. 6 - Prob. 29QAPCh. 6 - Prob. 30QAPCh. 6 - Prob. 31QAPCh. 6 - Prob. 32QAPCh. 6 - Prob. 33QAPCh. 6 - Prob. 34QAPCh. 6 - Prob. 35QAPCh. 6 - Prob. 36QAPCh. 6 - Prob. 37QAPCh. 6 - Prob. 38QAPCh. 6 - Prob. 39QAPCh. 6 - Prob. 40QAPCh. 6 - Prob. 41QAPCh. 6 - Prob. 42QAPCh. 6 - Prob. 1MCCh. 6 - GOODWEEK TIRES, INC. After extensive research and...
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