Purchase Solution

Cash Flows

Not what you're looking for?

Ask Custom Question

Year zero, Check your net cash flow. You have a tax loss. That has an impact on cash flow (CF) and needs to be taken into account either in year zero or in subsequent years, with the correct method to account for it in the spreadsheet in year 0. Year 0, then list year 1 to year 8 but don't create a cumulative column so you can summarize cash flows by item. This devise lets you summarize and serves to check your work. Remember project budgeting in a capital budget is not the same as the performance.

ABC Manufacturing is thinking of launching a new product. The company expects to sell $900,000 of the new product in the first year and $1,500,000 each year thereafter. Direct costs including labor and materials will be 55% of sales. Indirect incremental costs are estimated at $80,000 a year. The project will require a new plant that will cost a total of $1000,000 which will be depreciated straight line over the next five years. The new line will also require an additional net investment in inventory and receivables in the amount of 100,000. Assume there is not need for additional investment in building and land for the project. The firm's marginal tax rate is 40%, and its cost of capital is 10%. Based on this information you are to complete the following tasks.
Please, put the correct answer by the question.
1. Prepare a statement showing the incremental cash flows for this project over an 8-year period.
2. Calculate the Payback Period and the NPV for the project.
3. Based on your answer for question 2, do you think the project should be accepted? Why? Assume ABC has a P/B policy of not accepting projects with life of over three years.
4. If the project required additional investment in land and building, how would this affect your decision? Explain.

Attachments
Purchase this Solution
Solution provided by:
Gaurav Agarwal, MS
Education
  • BE, Bangalore University, India
  • MS, University of Wisconsin-Madison
Recent Feedback
  • "Your explanation to the answers were very helpful."
  • "What does 1 and 0 means in the repair column?"
  • "Went through all of the formulas, excellent work! This really helped me!"
  • "try others as well please"
  • "Thank you, this helped a lot. I was not sure how to plug in those numbers to a formula. This was a great help. Now I have to figure out how to explain cost of capital is used in net present value analysis, and how cost of capital is used in net present value analysis. This stuff gets confusing."
Purchase this Solution
Free BrainMass Quizzes
Writing Business Plans

This quiz will test your understanding of how to write good business plans, the usual components of a good plan, purposes, terms, and writing style tips.

Change and Resistance within Organizations

This quiz intended to help students understand change and resistance in organizations

Basic Social Media Concepts

The quiz will test your knowledge on basic social media concepts.

Organizational Behavior (OB)

The organizational behavior (OB) quiz will help you better understand organizational behavior through the lens of managers including workforce diversity.

Accounting: Statement of Cash flows

This quiz tests your knowledge of the components of the statements of cash flows and the methods used to determine cash flows.

View More Free Quizzes
Related BrainMass Solutions

  • Taussig Technologies is considering two potential projects,

    Cash flows are highly correlated with the cash flows from existing projects.

  • Cash Flows Differences in accepting projects is referred to

    incremental cash flow internal cash flows external cash flows erosion effects financing cash flows The difference between a firms future cash flows if it accepts a project and the firms future cash flows if it does not accept the project is referred

  • Three Major Activities on the Statement of Cash Flows

    The three elements of the statement of cash flows are cash flows from operating activities, cash flows from investing activities and cash flow from financing activities.

  • Linus Corporation

    The drop down menus for "Cash flows from operating activities," "Cash flows from investing activities," and "Cash flows from financing activities," list the following: Building Revenues Cash Paid to Purchase Equipment Cash Paid to Suppliers Cash

  • Govt. accounting-differences in the Statement of Cash Flows

    The sections include cash flows from operating activities, cash flows from noncapital financing activities, cash flows from capital and related financing activities, and cash flows from investing activities.

  • Statement of Cash Flow items

    Cash paid to purchase long-term investments would be reported on the statement of cash flows in a operating activies b financing activiees c investing activies d a seperate schedule 5. on the statement of cash flows, the cash flows from financing

  • Annual Before Tax Cash Flow

    The PV of the cash flows is equal to $10,000. We can write: Cash Flows X PVIFA (15%,10) = 10,000 The PVIFA factor for 15% and 10 years is 5.019 Annual cash flows = 10,000/5.019 = $1,992.43 These are after tax cash flows.

  • Classified Stock and Preferred Stock

    The definition of "normal" cash flows is that the cash flow stream has one or more negative cash flows followed by a stream of positive cash flows and then one negative cash flow at the end of the project's life. e.

  • XYZ Corporation: managing a cash flow deficiency

    ) Cash Flows from Investing Activities: Investment in Plant & Equipment Net Cash Flows from Investing Activities Cash Flows from Financing Activities: Issuance of Common Stock $200,000 Payment of Notes Payable Net Cash Flows

  • Cash Flows for Explosion of Popularity

    Please list five initial outlay cash flows, three variable operating cash flows, three fixed operating cash flows, and three disposition cash flows. Dear Student, Thank you for using BM. Below are my answers.

View More Related Solutions