Answer Happy

19 20 21 22 23 24 25 26 27 28 29 285835 30 31 33 34 35 36 37 39 Group 3 Invoce Price 220,000 Cost Per Unit- 104 Sales Price Per Unit=204 Part B: Disregard the assumptions in part a. What is the firm's depreciable basis? What are the annual depreciation expenses? Part C: Calculate the annual sales revenues and costs (other than depreciation). Why is it important to include inflation when estimating cash flows? Part D: Construct annual incremental operating cashflow statements. Part E: Estimate the required net working capital for each year and the cash flow due to investments in net working capital. Part F: Calculate the after-tax salvage cash flow. Part G: Calculate the net cash flows for each year. Based on these cash flows, what i are the project's NPV, IRR, MIRR, PI, payback, and discounted payback? Do these indicators suggest that the project should be undertaken? Part H: What does the term "risk" mean in the context of capital budgeting; to what extent can risk be quantified; and, when risk is quantified, is the quantification based primarily on statistical analysis of historical data or on subjective, judgmental estimates?

Cash Flow and Risk M&M Company is considering adding a new line to its product mix, and the capital budgeting analysis is being conducted by Tashay Wilcox, a recently graduated MBA. The production line would be set up in unused space in M&m's main plant. The machinery's invoice price would be approximately $, another $12,000 in shipping charges would be required, and it would cost an additional $28,000 to install the equipment. The machinery has an economic life of 4 years, and M&M has obtained a special tax ruling that places the equipment in the MACRS 3-year class. The machinery is expected to have a salvage value of $26,000 after 4 years of use. The new line would generate incremental sales of 1,250 units per year for 4 years at an incremental cost of $ per unit in the first year, excluding depreciation. Each unit can be sold for $ in the first year. The sales price and cost are both expected to increase by 3% per year due to inflation. Further, to handle the new line, the firm's net working capital would have to increase by an amount equal to 12% of sales revenues. The firm's tax rate is 35%, and its overall weighted average cost of capital is 10%. Group 1 Group 2 Group 3 Group 4 Group 5 205,000 215,000 220,000 225,000 235,000 Invoice rice Cost per unit Sales price per unit 102 202 103 203 104 204 105 205 106 206 Group 6 240,000 107 207 Group 7 245,000 108 208