Shimano Company has an opportunity to manufacture and sell one of two new produc
ID: 2480810 • Letter: S
Question
Shimano Company has an opportunity to manufacture and sell one of two new products for a five-year period. The company’s tax rate is 30% and its after-tax cost of capital is 14%. The cost and revenue estimates for each product are as follows:
For some reason my answers are wrong help please.
Shimano Company has an opportunity to manufacture and sell one of two new products for a five-year period. The company’s tax rate is 30% and its after-tax cost of capital is 14%. The cost and revenue estimates for each product are as follows:
For some reason my answers are wrong help please.
Explanation / Answer
Statement showing Cash flows Product A Product B Particulars Time PVf@14% Amount PV Amount PV Cash Outflows (Initial Investment) - 1.00 (400,000.00) (400,000.00) (550,000.00) (550,000.00) Cash Outflows (Investment in WC) - 1.00 (85,000.00) (85,000.00) (60,000.00) (60,000.00) Cash Outflows (Repairs) 3.00 0.6750 (45,000.00) (30,373.72) (70,000.00) (47,248.01) PV of Cash outflows = PVCO (515,373.72) (657,248.01) Cash inflows (Revenues - Exp) 1.00 0.8772 170,000.00 149,122.81 220,000.00 192,982.46 Cash inflows (Revenues - Exp) 2.00 0.7695 170,000.00 130,809.48 220,000.00 169,282.86 Cash inflows (Revenues - Exp) 3.00 0.6750 170,000.00 114,745.16 220,000.00 148,493.73 Cash inflows (Revenues - Exp) 4.00 0.5921 170,000.00 100,653.65 220,000.00 130,257.66 Cash inflows (Revenues - Exp) 5.00 0.5194 170,000.00 88,292.67 220,000.00 114,261.11 Cash inflows (WC released) 5.00 0.5194 85,000.00 44,146.34 60,000.00 31,162.12 PV of Cash Inflows =PVCI 627,770.10 786,439.93 NPV= PVCI - PVCO 112,396.38 129,191.93
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