Logo
Home Study Material Contact Search
AI Chat FREE
  1. business
  2. finance
  3. suppose blue thumb tools is considering the introd

Suppose Blue Thumb Tools is considering the introduction of a new, heavier hammer to be used...

Free

80.2K

Verified Solution

Question

Finance

Suppose Blue Thumb Tools is considering the introduction of anew, heavier hammer to be used for driving spikes. The new hammerwill cost $490,000. The cost will be depreciated straight-line tozero over the project’s five-year life, at the end of which the newhammer can be scrapped for $40,000. The new hammer will save thefirm $146,000 per year in pretax operating costs, and it requiredan initial investment in net working capital of $35,000. The taxrate of the firm is 30%. What are the cash flows of firm’s newproject (using a time line)?

Answer & Explanation Solved by verified expert
3.6 Ratings (518 Votes)

Step 1: Annual Operating cash flows

Savings in pretax costs = 146000

Less: depreciation = 490000/5 = 98000

Pre tax Income = 48000

Less: Tax = 30% = 14400

After tax income = 33600

Add back depreciation = 98000

OCF = 131600

Step 2: Cash flows

Year 0 = Purchase price+ NWC

= -490000-35000 = -525000

Year 1 to 4 : OCF

= 131600

Year 5: OCF+NWC + After tax salvage

= 131600+35000+40000*(1-0.30)

= 194600

Timeline

Year                    0                          1                          2                          3                            4                          5

Cash flow      -525000               131600               131600               131600 131600    194600
Get Answers to Unlimited Questions

Join us to gain access to millions of questions and expert answers. Enjoy exclusive benefits tailored just for you!

Membership Benefits:
  • Unlimited Question Access with detailed Answers
  • Zin AI - 3 Million Words
  • 10 Dall-E 3 Images
  • 20 Plot Generations
  • Conversation with Dialogue Memory
  • No Ads, Ever!
  • Access to Our Best AI Platform: Flex AI - Your personal assistant for all your inquiries!
Become a Member

Transcribed Image Text

Suppose Blue Thumb Tools is considering the introduction of anew, heavier hammer to be used for driving spikes. The new hammerwill cost $490,000. The cost will be depreciated straight-line tozero over the project’s five-year life, at the end of which the newhammer can be scrapped for $40,000. The new hammer will save thefirm $146,000 per year in pretax operating costs, and it requiredan initial investment in net working capital of $35,000. The taxrate of the firm is 30%. What are the cash flows of firm’s newproject (using a time line)?

Other questions asked by students

Q

NC has a value of $300M. Debt has a market value of $180M and a yield of...

Finance
Q

Using the sample 3, 4, 6, 1, 10, 6 Find the median, mean, mode, and range Find...

Statistics
Q

Why do we care about the study of Sem-5 gene acting in sex myoblast cell Migration...

Medical Sciences
Q

What all factors an engineer must consider for designing a retaining wall to retain a soil...

Civil Engineering
Q

Briefly discuss some of the services that international banks provide their customers and the market place. Chapter...

Finance
Q

x Parental population Offspring population FIX S Xf R p Xp Phenotipic values Phenotipic values

Biology
Q

Itranscript Use the 2020 Federal Tax Rates for Individuals to calculate the estimated taxes for...

Basic Math
Q

Volumes cm of 20 brains have a mean of 1056 8 cm and a standard...

Statistics
Q

Suppose that the value of a stock varies each day from 12 82 to 26...

Statistics
Q

The graph below represents y 3 sin 2x 2 0 2 T2 Select one O...

Algebra
Q

describe how investment in higher levels of inventory or receivables would affect the following i)...

Accounting
Q

Paris Electric sold $3,000,000, 10%, 10-year bonds on January 1, 2020. The bonds were dated...

Accounting