Description of this paper

You are considering expanding your product line that currently consists of skateboards to include




You are considering expanding your product line that currently;consists of skateboards to include gas-powered skateboards, and you feel you can sell;11,000 of these per year for 10 years (after which time this project is expected to shut down with;solar-powered skateboards taking over). The gas skateboards would sell for $70 each with variable;costs of $25 for each one produced, while annual fixed costs associated with production;would be $170,000. In addition, there would be a $1,500,000 initial expenditure associated with;the purchase of new production equipment. It is assumed that this initial expenditure will be;depreciated using the simplified straight-line method down to zero over 10 years. This project;will also require a one-time initial investment of $70,000 in networking capital associated with;inventory and that working capital investment will be recovered when the project is shut down.;Finally, assume that the firm?s marginal tax rate is 35 percent.;a. What is the initial outlay associated with this project?;b. What are the annual freecash flows associated with this project for years 1 through 9?;c. What is the terminal cash flow in year 10 (that is, what is the free cash flow in year 10 plus anyadditional cashflows associated with termination of this project)?;d. What is the projects NPV given a required rate of return of 11 percent?


Paper#18826 | Written in 18-Jul-2015

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