16. Use the following information to answer the 8 questions (filling in the blanks) that follow it. When answering the q
Posted: Tue Nov 16, 2021 8:02 am
16. Use the following information to answer the 8 questions
(filling in the blanks) that follow it. When answering the
questions, DO NOT use dollar signs, USE commas to separate
thousands, DO NOT use parenthesis to denote negative numbers, USE
the negative sign and place it in front of first digit of your
answer when your answer is a negative number. Round to the nearest
dollar (do not enter decimals). For example, if your answer is
-$1,245.80 then enter -1,246
RET Inc. currently has two products, low and high priced stoves.
RET Inc. has decided to sell a new line of medium-priced stoves.
Sales revenues for the new line of stoves are estimated at $3,000 a
year. Variable costs are 80% of sales. The project is expected to
last 10 years. Also, non-variable costs are $400 per year. The
company has spent $100 in research and a marketing study that
determined the company will have synergy gains/sales of $400 a year
from sales of its existing high-priced stoves. The production
variable cost of these sales is $200 a year.
The plant and equipment required for producing the new line of
stoves costs $600 and will be depreciated down to zero over 30
years using straight-line depreciation. It is expected that the
plant and equipment can be sold (salvage value) for $200 at the end
of 10 years. The new stoves will also require today an increase in
net working capital of $100 that will be returned at the end of the
project.
The tax rate is 25 percent and the cost of capital is 10%.
1. What is the initial outlay (IO) for this project?
2. What is the annual Earnings before Interests, and Taxes
(EBIT) for this project?
3. What is the annual net operating profits after taxes (NOPAT)
for this project?
4. What is the annual incremental net cash flow (operating cash
flow: OCF) for this project?
5. What is the remaining book value for the plant at equipment
at the end of the project?
6. What is the cash flow due to tax on salvage value for this
project? Enter a negative # if it is a tax gain. For example, if
your answer is a tax on capital gains of $3,004.80 then enter
-3,005 ; if your answer is a tax shelter from a capital loss of
$1,000.20 then enter 1,000
7. What is the project's cash flow for year 10 for this
project?
8. Is the Net Present Value (NPV) for this project positive or
negative? Just write the word positive or negative Page 8 of 10
(filling in the blanks) that follow it. When answering the
questions, DO NOT use dollar signs, USE commas to separate
thousands, DO NOT use parenthesis to denote negative numbers, USE
the negative sign and place it in front of first digit of your
answer when your answer is a negative number. Round to the nearest
dollar (do not enter decimals). For example, if your answer is
-$1,245.80 then enter -1,246
RET Inc. currently has two products, low and high priced stoves.
RET Inc. has decided to sell a new line of medium-priced stoves.
Sales revenues for the new line of stoves are estimated at $3,000 a
year. Variable costs are 80% of sales. The project is expected to
last 10 years. Also, non-variable costs are $400 per year. The
company has spent $100 in research and a marketing study that
determined the company will have synergy gains/sales of $400 a year
from sales of its existing high-priced stoves. The production
variable cost of these sales is $200 a year.
The plant and equipment required for producing the new line of
stoves costs $600 and will be depreciated down to zero over 30
years using straight-line depreciation. It is expected that the
plant and equipment can be sold (salvage value) for $200 at the end
of 10 years. The new stoves will also require today an increase in
net working capital of $100 that will be returned at the end of the
project.
The tax rate is 25 percent and the cost of capital is 10%.
1. What is the initial outlay (IO) for this project?
2. What is the annual Earnings before Interests, and Taxes
(EBIT) for this project?
3. What is the annual net operating profits after taxes (NOPAT)
for this project?
4. What is the annual incremental net cash flow (operating cash
flow: OCF) for this project?
5. What is the remaining book value for the plant at equipment
at the end of the project?
6. What is the cash flow due to tax on salvage value for this
project? Enter a negative # if it is a tax gain. For example, if
your answer is a tax on capital gains of $3,004.80 then enter
-3,005 ; if your answer is a tax shelter from a capital loss of
$1,000.20 then enter 1,000
7. What is the project's cash flow for year 10 for this
project?
8. Is the Net Present Value (NPV) for this project positive or
negative? Just write the word positive or negative Page 8 of 10