CK=m_1511 19781520 Kathleen Hernand Home Grades Personalized ReviewsDiscussion C
ID: 2576761 • Letter: C
Question
CK=m_1511 19781520 Kathleen Hernand Home Grades Personalized ReviewsDiscussion Course Materials apital Budgeting and Cash Flow Analysis raded Assignment | Due Saturday 11.25.17 at 11:45 PR Attempts: 7. The estimation of a project's net investment and net annual cash flows Consider the case of Collins Construction Co. Keep the Highest: /4 Aa Aa Collins Construction Co. currently earns annual revenues of $750,000 and incurs total operating expenses (excluding depreciation and interest expense) of 42.50% of revenues. Its earnings are taxed at a rate of 40% Today, its budgeting committee is evaluating the purchase of a new forkift. The forklift is expected to cost $60,000, plus $4,000 in freight and setup expenses, and will be depreciated using straight-line depreciation. It is expected that the forklift will have a useful life of 10 years and a $60,000. It is expected that the forklift will be sold for its book value, such that no capital gain or loss will be realized. salvage value equal to 25.00% of its purchase price of It is further expected that the forklift will cause a 20.00% increase in the firm's annual sales and total operating expenses (excluding depreciation and interest expense). If the forklift is purchased, the firm will require an additional $10,000 in net working capital (NWC). iven this information, complete the following analysis: . Question Answer what is the annual depreciation expense for the forklift? What is the net investment (NINV) of the investment? What are the net annual operating after-tax cash flows associated with this project? what is the project's last year (terminal) cash flow? [ .- Grade it Now Save & Continue Continue without savingExplanation / Answer
1. cost of forklift = Purchase price + freight charges = $64000 (60000+4000)
depreciation (SLM) = cost - salvage value / no. of years (life)
= 64000- 15000 / 10
= 4900
Salvage value = 60000 X .25 = 15000
2. net investment = fork lift cost + working capital requirement
= 64000 + 10000 = 74000
3. net operatinf cash flows = sales (net of tax) - operating expense (net of tax)
= 7,50000 X 1.2 X ( 1 - .4) - 750000 X 42.50% X 1.2 X (1-.4)
= 540000 - 229500 = 310500
4. terminal cash flow = salvage value = $ 60000 X .25 = 15000