60.1K

Verified Solution

Link Copied!

You may use excel. Copy and paste your work from excel into a document and submit as a PDF$.$ Please do not submit your excel worksheet.

It is the end of $2020.$ You work for Company XYZ$.$

$xYZ$ is considering purchasing a new machine to produce a new product, Product $x.$

To start production at the beginning of $2021,$ XYZ has to purchase the machine for $$60,000.$ The machine can be depreciated straight to zero over $7$ years. The machine's salvage value is $$20,000$ at the end of $2025.$

Your marketing department has conducted some research, and the findings have proven to be promising.

Expected Sales:

$\backslash$table$[[,2021,2022,2023,2024,2025],[$Units$,20,000,21,000,21,500,22,000,22,500]]$

Based on the research, the optimal sales price per unit is $$5.$ Cost of goods sold are $$3$ per unit. However once you reach annual production of $22,000$ units, cost of goods sold drop to $$\frac{2\mathrm{.}5}{?}$ unit. Machine maintenance costs $$3,000$ annually.

Net working capital consists mainly of inventory, minus payables. Net working capital is expected to be $10\%$ of sales, until the last year of the project when it will all be recouped.

XYZ$\text{'}$s weighted average cost of capital is $12\%.$ The marginal tax rate is $21\%.$ Capital gains tax is $15\%.$

Questions:

a$.$ Find Cash flow from Operations for years $2020$ to $2025(3$ pts$.)$

b$.$ Find Cash flow from Investing for years $2020$ to $2025(2$ pts$.)$

c$.$ Find the Net Present Value of this project $(2$ pts$.)$

d$.$ Find the Internal Rate of Return of this project $(1$ pt$.)$

Answer & Explanation Solved by verified expert

See Answer