You are considering creating a new product line in warehouse space that originally cost you $52,895...

80.2K

Verified Solution

Question

Finance

You are considering creating a new product line inwarehouse space that originally cost you $52,895 5 yearsago.
The required machinery would cost $6,786, should last9 years, after which could be scrapped for $887.
Net working capital would need to immediately increase by $4,332,but could return to normal levels after 9 years.
Annual sales and operating costs are expected to be $7,097 and$1,688, respectively.
18% of customers are expected to switch over from your existingproduct lines.
Your firm's cost of capital (WACC) is 8.3% and effective corporatetax rate is 43%.
Your firm uses straight line depreciation as its depreciationmethod.
What is this project's incremental cash flow in its final year9?

Answer & Explanation Solved by verified expert

4.0 Ratings (510 Votes)

A1BCDEFGHIJK234Free cashflow can be calculated as follows5Free CashFlow Operating Cash Flow Capital Expenditures Change inworking capital6OperatingCash Flow EBIT1Tax RateDepreciation7Tax Rate438Amountspent on warehouse space is an opportunity cost9Opportunity cost for warehouse space5289510Life of the project9years11Immediate investment in 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

You are considering creating a new product line inwarehouse space that originally cost you $52,895 5 yearsago. The required machinery would cost $6,786, should last9 years, after which could be scrapped for $887.Net working capital would need to immediately increase by $4,332,but could return to normal levels after 9 years.Annual sales and operating costs are expected to be $7,097 and$1,688, respectively.18% of customers are expected to switch over from your existingproduct lines.Your firm's cost of capital (WACC) is 8.3% and effective corporatetax rate is 43%.Your firm uses straight line depreciation as its depreciationmethod.What is this project's incremental cash flow in its final year9?