Sally Mae is evaluating a 4 year project to sell top-shelf moonshine. The project requires...
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Sally Mae is evaluating a 4 year project to sell top-shelf moonshine. The project requires the immediate purchase of equipment at a cost of $160,000. The equipment will be depreciated to a book value of $30,000 (not to zero) on a straight line basis. The equipment will be salvaged at the end of the project creating a $45,000 before-tax cash flow. Sally Mae estimates sales of 1,200 units a year. It costs her $15 in labor and materials to produce each unit, and the machinery requires $900 each year in maintenance. There are no other costs associated with production. Each unit has an anticipated sales price of $80. If the project is taken, Accounts Payable will immediately increase by $9,000 and Inventory will increase by $40,000. The relevant tax rate for the project is 35%.
What is the after-tax salvage value of the equipment?
What is the Operating Cash Flow (OCF) per year?
What is the marginal revenue (per unit)?
What is the initial investment in Net Working Capital?
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