Hi, I was able to solve parts 1-3 but need help solving 4-6. Apple is planning to launch a new easy-to-use kitchen appli

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answerhappygod
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Hi, I was able to solve parts 1-3 but need help solving 4-6. Apple is planning to launch a new easy-to-use kitchen appli

Post by answerhappygod »

Hi, I was able to solve parts 1-3 but need help solving
4-6.
Apple is planning to launch a new easy-to-use kitchen appliance
with a touchscreen interface, the iToaster. Apple expects to sell 1
million and 2 million units in the first two years after launch,
respectively, and then to discontinue this product. Each unit will
sell for $200 in the first year after launch, and $150 in the
second year. The costs of components and labor are $60 per unit,
while salaries and other expenses add up to $10 million in each
year the product is sold.
The factory that manufactures the iToaster requires an
investment of $80 million right now and $40 million one year from
now. It will take one year to complete, so production will only
start in the second year. The factory will be depreciated linearly
to zero over 5 years after its completion.
To get production up and running, Apple has to buy components
worth $5 million immediately before the launch of the product, and
add another $2 million worth of components to its inventory exactly
one year later.
The firm's marginal tax rate is 34%.
Part 1. What is the annual depreciation (in $
million)?
The initial book value of the factory is:
BV0 = 80 + 40 = 120
With linear depreciation over 5 years, the annual
depreciation is:
Dep. = 120 / 5 = 24 (million)
Answer: 24000000
Part 2. What is the net operating profit after taxes in
year 2 (in $ million)?
(in million, except for price)
Answer: 69960000
Part 3. What is the net operating profit after taxes in
year 3 (in $ million)?
Answer: 96360000
Part 4. What is the incremental cash flow (CF) at the
end of year 0 (in $ million)?
??? Need Help. Tried answer = -850000 Not Correct
Part 5. What is the incremental cash flow (CF) at the
end of year 1 (in $ million)?
??? Need Help. Tried answer = -42000000 Not Correct
Part 6. What is the incremental cash flow (CF) at the
end of year 2 (in $ million)?
??? Need Help. Tried answer = 93960000 Not Correct
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