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Used Equipment requirements $2,000,000 After 2 years, you intend to sell the equipment

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Question;Used Equipment requirements $2,000,000 After 2 years, you intend to sell the equipment for $500,000 and replace the equipment with $5,000,000 of new equipmentCost of intital inventory and supplies $500,000You use the $1m for the reasearch and as a partial payment toward the equipemnt. You fund the remaining equipment and working capital with a credit line. The credit line requires a 10% interestpayment everyyear, but requires no principle paymnets. You will need to extend the credt line further when you sell the oldequipment, pay down thecredit line with the proceedsand then further extene the credit line for the new equipment purchase.1st year sales $1,200,000Sales growth 5% for first 3 years - 2% growth years 4 & 5Cost of goods sold - 30% of salesSelling, general and administrative - 15% of salesFixed costs = $240,000 per yearDepreciation - 7 years MACRSTax Rate - 35%Discount Rate - 8%1. What is the cash flow resulting from disposal of the equipment at the end of 2 years?2. Computer a schedule of operating cash flows forthe 5 years.3. Compute a schedule of increamtnal cash flows for the restaurant4. Compute the projects net present value5. Should we accept or reject the project

 

Paper#49176 | Written in 18-Jul-2015

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