The lemon juice would be produced in an unused building adjacent to Allied's Fort Myers plant; Allied owns the building, which is fully depreciated. The required equipment would cost $200,000, plus an additional $40,000 for shipping and installation. In addition, inventories would rise by $25,000, while accounts payable would go up by $5,000. All of these costs would be incurred at t=0. By a special ruling, the machinery would be depreciated under the MACRS system as 3-year property. The applicable depreciation rates are 33%, 45%, 15%, and 7%.
The project is expected to operate for 4 years, at which time it will be terminated. The cash inflows are assumed to begin 1 year after the project is undertaken, or at t=1, and to continue ot to t=4. At the end of the project's life (t=4), the equipment is expected to have a salvage value of $25,000.
Unit sales are expected to total 100,000 cans per year, and the expected sales process is $2.00 per can. Cash operating costs for the project (total operating costs less depreciation) are expected to total 60% of $ sales. Allied's tax rate is 40%, and its weighted average cost of capital is 10%. Tentatively, the lemon juice project is assumed to be of equal risk to Allied's other assets.
There are several parts of this attachment spreadsheet and I've filled in the blanks of some of them but need assistance with completing the spreadsheet.
1. I need help completing the table down to operating income after taxes and then all the way down to net cash flows.
2. Fill in the blanks under Year 4 for the terminal cash flows, and complete the net cash flow line.
3.Calculate the project's NPV, IRR, MIRR, and regular payback.
I looked at previous posts for help but the investment outlay on the previous posts were incorrect. So, if the investment outlay was wrong before then the answers would also be wrong.© BrainMass Inc. brainmass.com October 16, 2018, 8:01 pm ad1c9bdddf
The solution explains the cash flows and calculation of payback, NPV, IRR and MIRR for Allied's Lemon Juice Project. It also contains the proper answer for investment outlay.
Operating cash flow, Initial Investment Outlay
1. Johnson Industries is considering an expansion project. The necessary equipment could be purchased for 9 million, and the project would also require an initial 3 million investment in net operating working capital. The company's tax rate is 40 percent. What is the projects initial investment outlays?
2. Nixon Communications is trying to estimate the first-year operating cash flow (at t =1) for a proposed project. The financial staff has collected the following information:
Projected Sales 10 million
Operating cost (not including depreciation) 7 million
Depreciation 2 million
Interest expense 2 million
The company faces a 40 percent tax rate. What is the project's operating cash flow for the first year (t = 1)?
3. Carter Air Lines is now in the terminal year of a project. The equipment originally cost 20 million, of which 80 percent has been depreciated. Carter can sell the used equipment today for another airline for 5 million, and its tax rate is 40 percent. What is the equipment after-tax net salvage value?View Full Posting Details