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The following is a Financial Management problem I was assigned, and I am SO LOST! Please, can someone help me with filling in the info after the question and show me how to get the answers to fill in, and also show me how to get the answers for the 4 questions at the bottom? I'm REALLY HAVING TROUBLE understanding how to get the total cash flows, incremental cash flows, etc. THANK YOU!!!

Alliance is considering automating their production process to become more efficient. In order to do so they will buy a new monorail manufacturing system at a cost of $500,000. The system will be depreciated using seven-year MACRS (15%, 25%, 17%, 12%, 9%, 9%, 9%, 4%). The system will be sold in five years for $200,000. If they buy the system they will Trade In their current trolleys for $100,000. The trolleys were originally bought four years ago for $500,000 and are being depreciated using straight-line depreciation over five years. If Alliance does not replace the trolleys, they will be kept for the next five years when they will be sold for $10,000. The new system will not affect Alliance’s sales but will reduce Costs of Goods Sold by $1,000,000. However, Fixed Costs will rise by $50,000 per year if the monorail system is installed. The tax rate is 40% and the WACC is 10%. What are the incremental cash flows associated with this proposed project?

Balance Sheet Effects |----------Depreciation Expenses-------------|

Today Year 1 Year 2 Year 3 Year 4 Year 5 End

1. Buy New Assets

2. Trade In Old Assets

3. Keep Old Assets

4. Change in NWC

Income Statement Effects

Year 1 Year 2 Year 3 Year 4 Year 5

Net Sales

- Net COGS

- Net Depreciation

- Net Fixed Costs

= Net OEBT

- Net Taxes

= Net OEAT

+ Net Depreciation

= Net Operating CF

Total Cash Flows

CF0 =

C01 =

C02 =

C03 =

C04 =

C05 =

C06 =


Homework Questions:

1. What is the Initial Cost of this project?

A. $300,000

B. $400,000

C. $500,000

D. $600,000

2. What is net depreciation expense on the income statement in Year 1?

A. -$75,000

B. -$25,000

C. $100,000

D. $175,000

3. What is the After Tax Salvage Value of selling the equipment at the end?

A. $164,000

B. $182,000

C. $218,000

D. $236,000

4. What is the Operating Cash Flow in Year 2

A. $430,000

B. $510,000

C. $560,000

D. $620,000

Please email, text, or call me.

Thank you

Kimberly Deshotels

[email protected]

318-787-8211

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Bunny Greenfelder
Bunny GreenfelderLv2
29 Sep 2019

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