(11-1) Talbot Industries is considering launching a new product. The new manufac
ID: 2382525 • Letter: #
Question
(11-1) Talbot Industries is considering launching a new product. The new manufacturing equipment will cost $17 million, and production and sales will require an initial $5 million investment in net operating working capital. The company’s tax rate is 40%. a. What is the initial investment outlay? b. The company spent and expensed $150,000 on research related to the new product last year. Would this change your answer? Explain. c. Rather than build a new manufacturing facility, the company plans to install the equipment in a building it owns but is not now using. The building could be sold for $1.5 million after taxes and real estate commissions. How would this affect your answer? (11-2) The financial staff of Cairn Communications has identified the following information for the first year of the roll-out of its new proposed service: Projected Sales $18 Million Operating Costs (not including depreciation) $9 Million Depreciation $4 Million Interest Expense $3 Million The company faces a 40% tax rate. What is the project’s operating cash flow for the first year (t = 1)? (11-1) Talbot Industries is considering launching a new product. The new manufacturing equipment will cost $17 million, and production and sales will require an initial $5 million investment in net operating working capital. The company’s tax rate is 40%. a. What is the initial investment outlay? b. The company spent and expensed $150,000 on research related to the new product last year. Would this change your answer? Explain. c. Rather than build a new manufacturing facility, the company plans to install the equipment in a building it owns but is not now using. The building could be sold for $1.5 million after taxes and real estate commissions. How would this affect your answer? (11-2) The financial staff of Cairn Communications has identified the following information for the first year of the roll-out of its new proposed service: Projected Sales $18 Million Operating Costs (not including depreciation) $9 Million Depreciation $4 Million Interest Expense $3 Million The company faces a 40% tax rate. What is the project’s operating cash flow for the first year (t = 1)? (11-1) Talbot Industries is considering launching a new product. The new manufacturing equipment will cost $17 million, and production and sales will require an initial $5 million investment in net operating working capital. The company’s tax rate is 40%. a. What is the initial investment outlay? b. The company spent and expensed $150,000 on research related to the new product last year. Would this change your answer? Explain. c. Rather than build a new manufacturing facility, the company plans to install the equipment in a building it owns but is not now using. The building could be sold for $1.5 million after taxes and real estate commissions. How would this affect your answer? (11-2) The financial staff of Cairn Communications has identified the following information for the first year of the roll-out of its new proposed service: Projected Sales $18 Million Operating Costs (not including depreciation) $9 Million Depreciation $4 Million Interest Expense $3 Million The company faces a 40% tax rate. What is the project’s operating cash flow for the first year (t = 1)?Explanation / Answer
Solution-(11-1)
(a)
(b)
The expenditures of last year are considered as a sunk cost. So, they do not show an incremental cash flow. In this way, they would not be involved in the analysis and would not change the answer.
(c)
The prospective sale of the building symbolized an opportunity cost to conduct the project in that building. As a result, the probable after-tax sale price must be accused beside the project as a cost.
Solution-(11-2)
Operating Cash Flows: t = 1
The initial investment outlay is $22million Equipment Cost $17,000,000 NOWC Investment $5,000,000 Total $22,000,000Related Questions
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