(creat a time line with expected cash flows for a new product. A caulking compou

Question

(creat a time line with expected cash flows for a new product. A caulking compound that abc's people developed. The firm has retained a caulking expert that helped develop the product at a cost of $30,000. the marketing manager thinks that they can sell 115,000 tubes per year at a price of $3.25 earch for 3 years after which the product will be obsolete. the required equipment would cost $150,000 plus another $25,000 for shipping and installation. current assets wold increase by $35,000while current liabilities would rise by $15,000. variable costs would be 60% of sales revenues, fixed costs would be $70,000per year and the fixed assets would be depreciated 7.14%. when production ceases after 3 years, the equipment should have a market value of $15,000.abc's tax rate is 40%. using 's )

Explanation / Answer

Increase in Wrkg Capita = Inc in CA - Inc in CL = 35000-15000 = 20000 Caulking expert is a Sunk cost & is not considered $30000 Dep SLN method = (Cost of eqpt - Salvage)/life = (150000-15000)/3 = 45000 AT T0 : Cost of eqpt 150,000 + $25000 I&C + Inc in WC 20000 = ($195,000) AT T1: Rev 115000*$3.25 = $373,750 Less Var cost 60% = $(224,250) ----------------------------------------- Total Cont $149,500 Less Dep 7.14%*(150000-15000) = ($9,639) Less FC (70000) --------------------------- Gross Profit $69,861 Add back Dep 9639 ------------------------- Net CF $79,500

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