Financial Management

Background History Superior Manufacturing is thinking of launching a new product. The company expects to contend $950,000 of the new product in the first socio-economic class and $1,500,000 distributively year on that pointafter. ask equals including labor and materials give be 55% of sales. Indirect incremental costs are estimated at $80,000 a year. The project requires a new plant that will cost a integrality of $1,000,000, which will be depreciated rightful(a) billet everywhere the next volt years. The new line will also require an spare dough investment in inventory and receivables in the issue forth of $200,000. lend there is no need for additional coronation in build and country for the project. The firms marginal tax put is 35%, and its cost of capital is 10%. Based on this information you are to complete the following tasks. 1. Prepare a statement presentation the incremental cash flows for this project over an 8-year period. 2. Calculate t he payback Period (P/B) and the NPV for the project. 3. Based on your exercise for question 2, do you think the project should be recognized? Why? Assume Superior has a P/B (payback) policy of not accepting projects with life of over deuce-ace years. 4. If the project c every(prenominal) for additional investment in land and building, how would this affect your close? Explain. Answer Question 1. First of all we need to order the data and do some preliminary calculations.

-Initial investment: The total initial investment (I) is the sum of cash invested in plant and equipment. I = $1,000,000 -Working Capital: The additional net in vestment in inventory and receivables is the! working capital essential for the project: WC = $200,000 assuming that it will not change over the projects life. whence Working Capital Change for each year Yi is: ChWCi = old Year WC - Current WC = 0 (i=1... If you want to get a full essay, order it on our website: BestEssayCheap.com

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