Calculating values for finance. Net cash flow, Initial Outlay. The president of
ID: 2647688 • Letter: C
Question
Calculating values for finance. Net cash flow, Initial Outlay.
The president of Real Time, Inc. has asked you to evaluate the proposed acquisition of a new computer system. The system's price is $150,000. In addition, installation and transportation costs would be $25,000. The system falls into the MACKS 3-year class. Purchase of the computer system would require an increase in net working capital of $10,000. It is estimated that the computer system would increase the firm's before-tax revenues by $55,000 per year but would also increase operating costs by $10,000 per year. The system is expected to be used for 3 years and then he sold for $35,000 The firm's marginal tax rate is 40 percent, and the project's cost of capital is 12 percent. Calculate the initial outlay. Calculate the net cash flows in each period. What is the net present value of the project? What is the internal rate of return?Explanation / Answer
(a) Initial investment is the amount required to start a business or a project.It is also called initial investment outlay or simply initial outlay.initial outlay equals the amount needed for capital expenditure,such as machinery,tools,shipment and installation,plus any increase in working capital,minus any after tax cash flows from disposal of any old assets. sunk costs are ignored because they are irrelevant.
Initial Outlay= Capital expenditurene+increase in working capital-disposal inflows
= $10,000
(C) Net present value is also called net present worth that is defined as the sum of the present values of incoming and outgoing cash floes in a period.
NPV
PV=FV/(1+r)n
(d)Internal rate of return(IRR) is that rate of return at which the NPV from the above investments will become zero.It is that rate of interest that makes the sum of all cash flows zero, and is useful to compare one investment to another.
(B) Net cash flow during the month 1 Cash flow from operating activities 2 Cash flow from financing activities 3 Cash flow from investing activities NET CASH FLOWRelated Questions
drjack9650@gmail.com
Navigate
Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.