Purchase Solution

Incremental cash flows for project, Payback, NPV

Not what you're looking for?

Ask Custom Question

See file attached.

Superior Manufacturing is thinking of launching a new product. The company expects to sell $950,000 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 requires a new plant that will cost a total of $1,000,000, 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 $200,000. Assume there is no need for additional investment in building and land for the project. The firm's marginal tax rate is 35%, and its cost of capital is 10%. Based on this information you are to complete the following tasks.

Prepare a statement showing the incremental cash flows for this project over an 8-year period.

Calculate the Payback Period (P/B) and the NPV for the project.

Based on your answer for question 2, do you think the project should be accepted? Why? Assume Superior has a P/B (payback) policy of not accepting projects with life of over three years.

If the project required additional investment in land and building, how would this affect your decision? Explain.

For more information on creating Excel Spreadsheets, please visit the Excel Lab.

Attachments
Purchase this Solution
Solution Summary

The solution explains how to calculate the incremental cash flows for project, Payback and NPV

Solution Preview

Please see the excel file for calculations

Calculate the Payback Period (P/B) and the NPV for the project.

The payback period is 2.98 years and the NPV is $1,075,689.26

Based on your answer for question 2, do you think the project should be accepted? Why? Assume Superior has a P/B (payback) policy of not ...

Purchase this Solution
Free BrainMass Quizzes
Six Sigma for Process Improvement

A high level understanding of Six Sigma and what it is all about. This just gives you a glimpse of Six Sigma which entails more in-depth knowledge of processes and techniques.

Business Processes

This quiz is intended to help business students better understand business processes, including those related to manufacturing and marketing. The questions focus on terms used to describe business processes and marketing activities.

Lean your Process

This quiz will help you understand the basic concepts of Lean.

Understanding Management

This quiz will help you understand the dimensions of employee diversity as well as how to manage a culturally diverse workforce.

Social Media: Pinterest

This quiz introduces basic concepts of Pinterest social media

View More Free Quizzes
Related BrainMass Solutions

  • Capital Budgeting

    Prepare a statement showing the incremental cash flows for this project over an 8-year period. 2. Calculate the Payback Period (P/B) and the NPV for the project. 3.

  • Incremental cash flows

    Prepare a statement showing the incremental cash flows for this project over an 8-year period. Please see the attached file for cash flow calculations. Calculate the payback period (P/B) and the net present value (NPV) for the project.

  • Incremental Cash Flow and NPV

    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 above, do you think that the project should be accepted?

  • Superior Manufacturing: Incremental Cash Flows, Payback, and NPV

    A statement for showing incremental cash flows is created. The payback period and NPV are also calculated.

  • Long term financial management decisions

    Prepare a statement showing the incremental cash flows for this project over an 8-year period. Calculate the Payback Period (P/B) and the NPV for the project. Based on your answer for question 2, do you think the project should be accepted?

  • Evaluate new product launch for manufacturing company: Cash flows, payback, NPV

    Using the information in the assignment description: - Prepare a statement showing the incremental cash flows for this project over an 8-year period. - Calculate the payback period (P/B) and the net present value (NPV) for the project.

  • Superior Manufacturing

    101383 Prepare a statement showing the incremental cash flows for this project over an 8-year period. Calculate the Payback Period (P/B) and the NPV for the project. Superior Manufacturing is thinking of launching a new product.

  • Capital Budgeting

    The solution explains the preparation of the incremental cash flows for the launch of a new product and the calculation of payback and NPV.

  • Profitability Index versus NPV and Comparing Investment Criteria

    Comparing Investment Criteria Consider the following cash flows of two mutually exclusive projects for AZ-Motorcars. Assume the discount rate for AZ-Motorcars is 10%.

View More Related Solutions