The Finney Company is reviewing the possibility of remodeling one of its showroo
ID: 2381708 • Letter: T
Question
The Finney Company is reviewing the possibility of remodeling one of its showrooms and buying some new equipment to improve sales operations. The remodeling would cost $400,000 now and the useful life of the project is 14 years. Additional working capital needed immediately for this project would be $40,000; the working capital would be released for use elsewhere at the end of the 14-year period. The equipment and other materials used in the project would have a salvage value of $20,000 in 14 years. Finney's discount rate is 19%. (Ignore income taxes.)
Click here to view Exhibit 13B-1 and Exhibit 13B-2 to determine the appropriate discount factor(s) using tables.
What would the annual net cash inflows from this project have to be in order to justify investing in remodeling? (Round discount factor(s) to 3 decimal places, intermediate and final answers to the nearest dollar amount.)
The Finney Company is reviewing the possibility of remodeling one of its showrooms and buying some new equipment to improve sales operations. The remodeling would cost $400,000 now and the useful life of the project is 14 years. Additional working capital needed immediately for this project would be $40,000; the working capital would be released for use elsewhere at the end of the 14-year period. The equipment and other materials used in the project would have a salvage value of $20,000 in 14 years. Finney's discount rate is 19%. (Ignore income taxes.)
The Finney Company is reviewing the possibility of remodeling one of its showrooms and buying some new equipment to improve sales operations. The remodeling would cost $400,000 now and the useful life of the project is 14 years. Additional working capital needed immediately for this project would be $40,000; the working capital would be released for use elsewhere at the end of the 14-year period. The equipment and other materials used in the project would have a salvage value of $20,000 in 14 years. Finney's discount rate is 19%. (Ignore income taxes.) What would the annual net cash inflows from this project have to be in order to justify investing in remodeling? (Round discount factor(s) to 3 decimal places, intermediate and final answers to the nearest dollar amount.) $90,529 $75,866 $77,518 $97,213Explanation / Answer
Using Goal Seek, To set value of Final NPV to 0 by changing Cash Flows Every Year Answer: A Initial Cost -400000 Working Capital Need -40000 At end of 14 Years Salvage Value 20000 Recovery of WC 40000 Years 14 Discount Rate 19% Based on 13B-1 0.088 Total SV and WC 5280 Cash Flows Every Year 90529 PV of all Cash Flows 434720 NPV 0
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