NPV. Grady Precision Measurement Tools has forecasted the following sales and costs for a new GPS?...

Free

70.2K

Verified Solution

Question

Finance

NPV. Grady Precision Measurement Tools hasforecasted the following sales and costs for a new GPS? system:annual sales of 45,000 units at $17 a? unit, production costs at39?% of sales? price, annual fixed costs for production at$210,000. The company tax rate is 38?%. What is the annualoperating cash flow of the new GPS? system? Should Grady PrecisionMeasurement Tools add the GPS system to its set of? products? Theinitial investment is $1,430,000 for manufacturing? equipment,which will be depreciated over six years? (straight line) and willbe sold at the end of five years for $ 380,000. The cost of capitalis 10?%.
What is the annual operating cash flow of the new GPS? system?$____ (Round to the nearest? dollar.)
What is the? after-tax cash flow of the GPS system at? disposal?$_ (Round to the nearest? dollar.)
What is the NPV of the new GPS? system? $_____ ?(Round tothe nearest? dollar.)
Should Grady Precision Measurement Tools add the GPS system toits set of? products? ?(Select the best? response.)
A. ?No, because the NPV is negative which means the projectedannual rate of return on the project is less than the cost ofcapital.
B. ?Yes, because the project will generate enough wealth to giveinvestors an adequate yield.

Answer & Explanation Solved by verified expert

3.8 Ratings (404 Votes)

1-
sales	765000
production cost=39% of sales	298350
depreciation =1430000/6	238333.3333
fixed cost	210000
operating profit	18316.66667
less tax-38%	6960.333333
after tax net income	11356.33333
add depreciation	238333.3333
annual operating cash flow	249689.6667

2-
after tax sale proceeds	380000*(1-.38)	235600

Year	cash flow	present value of cash flow = operating cash flow/(1+r)^n r = 10%	present value of cash flow = operating cash flow/(1+r)^n r = 10%
0	-1430000	-1430000/1.1^0	-1430000
1	249689.6667	249689.66/1.1^1	226990.6
2	249689.6667	249689.66/1.1^2	206355.0909
3	249689.6667	249689.66/1.1^3	187595.5372
4	249689.6667	249689.66/1.1^4	170541.3974
5	249689.6667	249689.66/1.1^5	155037.634
6	485289.6667	485289.66/1.1^6	273933.3616
net present value = sum of present value of operating cash flow			-209546

3-
No	?No, because the NPV is negative which means the projected annual rate of return on the project is less than the cost of capital.

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

NPV. Grady Precision Measurement Tools hasforecasted the following sales and costs for a new GPS? system:annual sales of 45,000 units at $17 a? unit, production costs at39?% of sales? price, annual fixed costs for production at$210,000. The company tax rate is 38?%. What is the annualoperating cash flow of the new GPS? system? Should Grady PrecisionMeasurement Tools add the GPS system to its set of? products? Theinitial investment is $1,430,000 for manufacturing? equipment,which will be depreciated over six years? (straight line) and willbe sold at the end of five years for $ 380,000. The cost of capitalis 10?%.What is the annual operating cash flow of the new GPS? system?$________ (Round to the nearest? dollar.)What is the? after-tax cash flow of the GPS system at? disposal?$_________ (Round to the nearest? dollar.)What is the NPV of the new GPS? system? $_________ ?(Round tothe nearest? dollar.)Should Grady Precision Measurement Tools add the GPS system toits set of? products? ?(Select the best? response.)A. ?No, because the NPV is negative which means the projectedannual rate of return on the project is less than the cost ofcapital.B. ?Yes, because the project will generate enough wealth to giveinvestors an adequate yield.