Logo
Home Study Material Contact Search
AI Chat FREE
  1. business
  2. accounting
  3. carsen sorensen, controller of thayn company, just

Carsen Sorensen, controller of Thayn Company, just received the following data associated with production of...

60.1K

Verified Solution

Question

Accounting

Carsen Sorensen, controller of Thayn Company, just received the following data associated with production of a new product:

  • Expected annual revenues: $750,000
  • Projected product life cycle: five years
  • Equipment: $800,000 with a salvage value of $100,000 after five years
  • Expected increase in working capital: $100,000 (recoverable at the end of five years)
  • Annual cash operating expenses: estimated at $450,000
  • Required rate of return: 8 percent

The present value tables provided in Exhibit 19B.1 and Exhibit 19B.2 must be used to solve the following problems.

Required:

1. Estimate the annual cash flows for the new product. Enter cash outflows as negative amounts and cash inflows as positive amounts.

Year Cash Flow
0 $
14 $
5 $

2. Using the estimated annual cash flows, calculate the NPV. $

3. What if revenues were overestimated by $150,000? Redo the NPV analysis, correcting for this error. Assume the operating expenses remain the same. Enter cash outflows as negative amounts and cash inflows as positive amounts.

Year Cash Flow Present Value
0 $ $
14
5
Net present value $

Answer & Explanation Solved by verified expert
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

Other questions asked by students