Bygrave corp is considering a 600,000 capital investment in equipment. Bygrave i

Question

Bygrave corp is considering a 600,000 capital investment in equipment. Bygrave intends to depreciate the equipment on a straight-line basis over three years. Assume that the equipment has no salvage value at the end of the projcts life. To support the project, bygrave expects accounts receivables to increase by 75,000 inventory to increase by 45,000 and accounts payable to increase by 55,000. the investment in net working capital will be fully recovered at the end f the projects life.
1 . What is the projects total initial investment ( including cash flow from capital spending and changes in net working capital? 2. Bygrave forecasts incremental annual sales revenue of 900,000. similarly, bygrave expects total variable costs to increase by 500,000 and total fixed costs to increase by 80,000. bygrave marginal tax rate is 35% what is the project annual operating cash flow ? 3. bygrave estimates that this project has a required return of 15.0% what is the projects NPV? 4. what is the projects IRR?


Bygrave corp is considering a 600,000 capital investment in equipment. Bygrave intends to depreciate the equipment on a straight-line basis over three years. Assume that the equipment has no salvage value at the end of the projcts life. To support the project, bygrave expects accounts receivables to increase by 75,000 inventory to increase by 45,000 and accounts payable to increase by 55,000. the investment in net working capital will be fully recovered at the end f the projects life.
1 . What is the projects total initial investment ( including cash flow from capital spending and changes in net working capital? 2. Bygrave forecasts incremental annual sales revenue of 900,000. similarly, bygrave expects total variable costs to increase by 500,000 and total fixed costs to increase by 80,000. bygrave marginal tax rate is 35% what is the project annual operating cash flow ? 3. bygrave estimates that this project has a required return of 15.0% what is the projects NPV? 4. what is the projects IRR?

Explanation / Answer

Hi,

Please find the answer as follows:

Part A:

Total initial investment = 600000 -75000-45000+55000 = 665000

Part B:

Operating Cash Flow = 900000 - 500000 - 80000 = 320000 - 600000/3 (Depreciation) = 120000*(1-.35) + 200000 = 278000

Part C:

NPV = - 665000 + 278000/(1+.15)^1 + 278000/(1+.15)^2 + 278000/(1+.15)^3 + 65000/(1+.15)^3 = 12475.14

Part D:

0 = - 665000 + 278000/(1+r)^1 + 278000/(1+r)^2 + 278000/(1+r)^3 + 65000/(1+r)^3 = 16.09%

IRR = 16.09%

Thanks.

Related Questions

Navigate

• Browse (All)
• Browse B
• Subjects

---

---

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.