(Ignore income taxes in this problem.) The Finney Company is reviewing the possi
ID: 2492269 • Letter: #
Question
(Ignore income taxes in this problem.) 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 $172,000 now and the useful life of the project is 8 years. Additional working capital needed immediately for this project would be $43,000; the working capital would be released for use elsewhere at the end of the 8-year period. The equipment and other materials used in the project would have a salvage value of $16,500 in 8 years. Finney's discount rate is 15%. What would the annual net cash inflows from this project have to be in order to justify investing in remodeling? (Round your 'PV factors' to three decimal places. Round your other intermediate calculations and final answer to the nearest whole dollar.) (Use Exhibit11b-1, Exhibit11b-2) rev: 12_14_2012, 12_21_2012, 01_14_2015_QC_CS-3712
Explanation / Answer
Answer : annual net cash inflows from this project have to be in order to justify investing in remodeling = $ 43578.42
Working Notes for the above answer is as under
Require Cash Flow will be calculated as follow
Initial Out flow= Pv of Annual Cash Flow+Pv Of salvage+PV of woking capital realeses
215000 = Annual Cash flow(15%PVIFA,8 years) +16500*0.3269 +43000*0.3269
215000=Annual Cash flow(15%PVIFA,8 years)+5393.85+14056.7
215000=Annual Cash flow(4.4873)+19450.55
215000-19450.55 =Annual Cash flow(4.4873)
Annual Cash flow(4.4873) = 195549.45
Annual Cash Flow =195549.48/4.4873
Annual Cash Flow =$ 43578.42
remodeling would cos 172000 useful life of the project 8 Year Additional working capital needed 43000 salvage value 16500 Finney's discount rate is 15%Related Questions
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