9. Suppose Blue Thumb Tools is considering the introduction of a new, heavier hammer to be...

80.2K

Verified Solution

Question

Finance

9. Suppose Blue Thumb Tools is considering the introduction of anew, heavier hammer to be used for driving spikes. The new hammerwill cost $490,000. The cost will be depreciated straight-line tozero over the project’s five-year life, at the end of which the newhammer can be scrapped for $40,000. The new hammer will save thefirm $146,000 per year in pretax operating costs, and it requiredan initial investment in net working capital of $35,000. The taxrate of the firm is 30%.
What are the cash flows of firm’s new project (using a timeline)?
What is the net present value of this project (list yoursetups)?
What is the IRR of this project (list your setups)?
Please solve without excel so that I can see the steps.

Answer & Explanation Solved by verified expert

4.2 Ratings (550 Votes)

Step 1 Calculation of the cash flows of firms new project Year 0 1 2 3 4 5 Investment in a new hammer 49000000 Investment in net working capital 3500000 Savings in pre tax operating cost 14600000 14600000 14600000 14600000 14600000 Tax 30 on savings in pre See Answer

Get Answers to Unlimited Questions

Join us to gain access to millions of questions and expert answers. Enjoy exclusive benefits tailored just for you!

Membership Benefits:

Unlimited Question Access with detailed Answers
Zin AI - 3 Million Words
10 Dall-E 3 Images
20 Plot Generations
Conversation with Dialogue Memory
No Ads, Ever!
Access to Our Best AI Platform: Flex AI - Your personal assistant for all your inquiries!

Become a Member

Transcribed Image Text

9. Suppose Blue Thumb Tools is considering the introduction of anew, heavier hammer to be used for driving spikes. The new hammerwill cost $490,000. The cost will be depreciated straight-line tozero over the project’s five-year life, at the end of which the newhammer can be scrapped for $40,000. The new hammer will save thefirm $146,000 per year in pretax operating costs, and it requiredan initial investment in net working capital of $35,000. The taxrate of the firm is 30%.What are the cash flows of firm’s new project (using a timeline)?What is the net present value of this project (list yoursetups)?What is the IRR of this project (list your setups)?Please solve without excel so that I can see the steps.