The ABC Company is considering an investment in a new product. The information s
ID: 2590390 • Letter: T
Question
The ABC Company is considering an investment in a new product. The information surrounding this new product development is exhibited below: Sales s 200,000 Manufacturing costs of sales (o6s dadministrative depreciation) (directly associated with the product) 80,000 40,000 Selling and administrative expenses Equipment purchases Decrease in sales contribution of other products Increase in accounts receivable Increase in inventories Increase in current liabilities Income taxes associated with product income Interest on bonds expected to be used in financing 200,000 5,000 15,000 20,000 30,000 12,000 18,000 10 years 10 years Product life Equipment useful life Required: 30 points 1. Using the indirect cash-flow method (p. 669-672), compute the cash flow from operating activities for this new product investment.(irst complere a muln stop income dcprehatton 20k stotement to ind net incomme 20 points Compute:. chanac in accrs puaole inventoruothex ossers ac(ts 2. Compute the net present value (NPV) and internal rate of return (IRR) for this new and ofher ent hooilfacS product investment. The cost of capital is 8.20%. Is this a good investment (RCC)?Explanation / Answer
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Income Statement Sales 200,000 Manufacturing cost of sales (80,000) (including depreciation $20,000) Selling & administrative expenses (40,000) Decrease in sales contribution of other products (5,000) Interest on bonds (18,000) Net profit as per income statement 57,000 Computation of cash flow from operating acitivities (indirect method) Net profit as per income statement 57,000 Depreciation 20,000 Interest on bonds 18,000 Increase in accounts receivable (15,000) Increase in inventories (20,000) Increase in current liabilities 30,000 Cash flow from operating activities 90,000Related Questions
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