Problem 2 Your company, Dominant Retailer, Inc., is considering a project whose data are shown below....

90.2K

Verified Solution

Question

Finance

Problem 2 Your company, Dominant Retailer, Inc., is consideringa project whose data are shown below. Revenue and cash operatingexpenses are expected to be constant over the project's 5 yearexpected operating life; annual sales revenue is $95,000.00 andcash operating expenses are $37,500.00. The new equipment's costand depreciable basis is $135,000.00 and it will be depreciated byMACRS as 5 year property. The new equipment replaces olderequipment that is fully depreciated but can be sold for $7,500. Inaddition, the new equipment requires an additional $5,000 of netoperating working capital, which can be fully recovered at the endof the project. The new equipment is expected to be sold for$10,995 at the end of the project in year 5. The marginal tax rateis 28.00%. What is the project's Initial Cash Outlay at Year 0?Note: Enter your answer rounded off to two decimal points. Do notenter $ or comma in the answer box. For example, if your answer is$12,300.456 then enter as 12300.46 in the answer box.
Using the information from problem 2 on Dominant Retailer, Inc.,what is the NPV of the Project if Dominant Retailer’s WACC is12.75%? Enter your answer rounded to two decimal places. Do notenter $ or comma in the answer box. For example, if your answer is$12,300.456 then enter as 12300.46 in the answer box.

Answer & Explanation Solved by verified expert

3.8 Ratings (669 Votes)

Calculating projects initial outlay of project in year 0 Cost of new equipment 135000 Initial investment in working capital 5000 Salvage value of old equipment 7500 Book value of old equipment 0 Net proceeds from sale of old equipment Salvage value of old equipment Tax on gain from sale of old equipment Salvage value of old equipment tax rateSalvage value of old equipment Book value of old equipment 7500 287500 0 7500 2100 5400 Initial outlay in year 0 Cost of new equipment Initial investment in working capital Net proceeds from sale of old equipment 135000 5000 5400 134600 Projects initial 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

Problem 2 Your company, Dominant Retailer, Inc., is consideringa project whose data are shown below. Revenue and cash operatingexpenses are expected to be constant over the project's 5 yearexpected operating life; annual sales revenue is $95,000.00 andcash operating expenses are $37,500.00. The new equipment's costand depreciable basis is $135,000.00 and it will be depreciated byMACRS as 5 year property. The new equipment replaces olderequipment that is fully depreciated but can be sold for $7,500. Inaddition, the new equipment requires an additional $5,000 of netoperating working capital, which can be fully recovered at the endof the project. The new equipment is expected to be sold for$10,995 at the end of the project in year 5. The marginal tax rateis 28.00%. What is the project's Initial Cash Outlay at Year 0?Note: Enter your answer rounded off to two decimal points. Do notenter $ or comma in the answer box. For example, if your answer is$12,300.456 then enter as 12300.46 in the answer box.Using the information from problem 2 on Dominant Retailer, Inc.,what is the NPV of the Project if Dominant Retailer’s WACC is12.75%? Enter your answer rounded to two decimal places. Do notenter $ or comma in the answer box. For example, if your answer is$12,300.456 then enter as 12300.46 in the answer box.