Swance Capstone Problems (20 Points Each) 19) Cascade, Inc., has assembled the e
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Question
Swance Capstone Problems (20 Points Each) 19) Cascade, Inc., has assembled the estimates shown below relating to a proposed new product. These estimates are based on a 5-year project life, at the end of which the new equipment would be sold, working capital would revert to other uses in the company, and the product would be discontinued. Cascade uses a discount rate of 18%. Annual cash sales Annual out-of-pocket cash expenses Annual depreciation on new equipment Initial cost of new equipment Salvage value of equipment in 5 years Working capital requirement $420,000 $330,000 $36,000 $200,000 $20,000 $140,000 Compute the net present value of the new product.Explanation / Answer
Annual net cash inflows = 420000-330000 = 90000 Year(s) Amount PV factor Present value Initial cost Now -200000 1 -200000 Working capital -140000 1 -140000 Annual cash inflows 90000 3.12717 281445 Salvage value 20000 0.43711 8742 Working capital release 140000 0.43711 61195 Net present value 11383
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