Question and answer
Bender Guitar Corporation, a manufacturer of custom electric guitars, is contemplating a $1,000,000 investment in a new production facility. The economic life of the facility is estimated to be five
years, after which the facility will be obsolete and have no salvage value. To make the new facility operational, building improvements costing $400,000 will be required. In addition, a $50,000 increase in working capital will be needed. Bender's accounting and marketing departments have provided the following information: the firm will use the straight-line method of depreciation; the Company is in the 30% tax bracket; the weighted average cost of capital is 8%. Here are Earnings before Interest and Taxes (EBIT) estimates for the new facility: Year 1.........$80,000 Year 2.......$100,000 Year 3.......$120,000 Year 4........$140,000 Year 5.......$165,000 Your assignment is to answer the following questions: 1. Diagram the cash flows for the project using a time line. For each of Years 1 through 5, include the following data on your diagram (in this order) : EBIT, tax, depreciation, Operating Cash Flow (OCF), and discounted OCF. 2. Indicate the initial investment cost, the present value, the Net Present Value (NPV), and the payback (measured in years based on non-discounted OCF numbers). 3. Evaluate the project's efficacy. Is this facility worthwhile, based upon your calculations ? Why or why not ? What does the NPV decision rule indicate for this project ? If you were Bender's financial manager, what other factors would you consider before deciding whether or not to recommend construction of the production facility ?
Weegy answers basic questions. I can't do your whole assignment for you. For more detailed help you need to pay to use Weegy Research.
Expert answered|debnjerry|Points 11124|
Question
Asked 4/10/2011 5:26:56 PM
0 Answers/Comments
Get an answer
New answers
Rating

There are no new answers.

Comments

There are no comments.

Add an answer or comment
Log in or sign up first.
25,051,216 questions answered
Popular Conversations
The payment of accounts payable would A. increase both assets and ...
Weegy: The payment of accounts payable would decrease assets and increase liabilities. User: An expense should be ...
5/4/2016 8:26:28 AM| 2 Answers
Public schools in America during the late 1800s wanted immigrants to ...
Weegy: A and plz rate me good
5/4/2016 1:07:23 PM| 2 Answers
What are the major bodies of water in Central Asia?
Weegy: bays, canals, channels, falls, gulfs, lakes, oceans, rivers, seas and straits are the major bodies of water . ...
5/4/2016 3:36:37 PM| 2 Answers
What was the first armed conflict of the Cold War? A. the Korean ...
Weegy: A) love of labor User: What was the outcome of the Vietnam War? A. South Vietnam became democratic. B. The ...
5/4/2016 9:15:47 PM| 2 Answers
what is a gong?
5/5/2016 7:07:26 AM| 2 Answers
Weegy Stuff
S
Points 200 [Total 200] Ratings 8 Comments 120 Invitations 0 Offline
S
Points 150 [Total 150] Ratings 2 Comments 120 Invitations 1 Offline
S
1
L
L
P
R
P
L
P
P
R
Points 120 [Total 12372] Ratings 1 Comments 110 Invitations 0 Offline
S
Points 38 [Total 107] Ratings 0 Comments 38 Invitations 0 Offline
S
L
P
P
P
Points 35 [Total 3412] Ratings 0 Comments 35 Invitations 0 Offline
S
R
Points 10 [Total 732] Ratings 0 Comments 10 Invitations 0 Offline
S
Points 10 [Total 10] Ratings 1 Comments 0 Invitations 0 Offline
S
Points 3 [Total 178] Ratings 0 Comments 3 Invitations 0 Offline
S
Points 1 [Total 48] Ratings 0 Comments 1 Invitations 0 Offline
S
Points 1 [Total 1] Ratings 0 Comments 1 Invitations 0 Offline
* Excludes moderators and previous
winners (Include)
Home | Contact | Blog | About | Terms | Privacy | © Purple Inc.