NPV.??Grady Precision Measurement Tools has forecasted the following sales and c
ID: 2618231 • Letter: N
Question
NPV.??Grady Precision Measurement Tools has forecasted the following sales and costs for a new GPS? system: annual sales of 44 comma 00044,000 units at ?$1616 a? unit, production costs at 3939?% of sales? price, annual fixed costs for production at $ 210 comma 000$210,000. The company tax rate is 3030?%. What is the annual operating cash flow of the new GPS? system? Should Grady Precision Measurement Tools add the GPS system to its set of? products? The initial investment is ?$1 comma 340 comma 0001,340,000 for manufacturing? equipment, which will be depreciated over six years? (straight line) and will be sold at the end of five years for $ 380 comma 000$380,000. The cost of capital is 1111?%. What is the annual operating cash flow of the new GPS? system?
Explanation / Answer
Calculation of depreciation
Cost of assets=1340000 salvage value=380000 life =6years
Depreciation=(1340000-380000)/6=160000
Calculation of NPV
NPV=PV of annual inflow +present value of terminal inflow - initial outflow
=201608PVAF(11%,6years )+380000PVIF(11%,6 years) - 1340000
=201608*4.2305+380000*0.5346-1340000
=853215+203148-1340000=-283637NEGATIVE
SHOULD NOT BE ADDED AS IT HAS NEGATIVE NPV
Particular Amount No of units to be sold 44000 Sales price 16 Variable cost(39%of 16) 6.24 Contribution per unit 9.76 Total contribution 429440 Less fixed cost 210000 Profit before tax and depreciation 219440 Less Depreciation 160000Related Questions
Navigate
Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.