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Traid Winds Corporation, a firm in the 34 percent marginal tax bracket with a 15 percent

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(Comprehensive Problem);Traid Winds Corporation, a firm in the 34 percent marginal tax bracket with a 15 percent required rate of return or cost of capital;is considering a new project. This project involves the introduction of new product. This project is expected to last five years and then;because this is somewhat of a fad project, to be terminated. Given the following information, determine the free cash flows associated;with the project, the project's net present value, the profitability index, and the internal rate of return. Apply the appropriate decision criteria.;Cost of new plant and equipment: $14,800,000;Shipping and installation costs: $200,000;Unit sales: Year Units Sold;1 70,000;2 120,000;3 120,000;4 80,000;5 70,000;Sales price per unit: $300/unit in years 1-4, $250/unit year 5;Varible cost per unit: $140/unit;Annual fixed costs: $700,000;Working-capital requirements: There will be an initial working-capital requirement of $200,000 just to get production started. For each year;the total investment in net working capital will be equal to 10 percent of the dollar value of sales for that year, Thus the investment in working;capital will increase during year 1 through 3, then decrease in year 4. Finally, all working capital is liquidated at the termination of the project;at the end of year 5.;The depreciation method: Use the simplified straight-line method over five years. It is assumed that the plant and equipment will have no salvage;value after five years.;Additional Requirements;Level of Detail: Show all work

 

Paper#25095 | Written in 18-Jul-2015

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