Question 6Jocelyn Chen & Bosco Lau Toys has developed a new children's toy. The project will last for 4years. The total sales for the first year are $20,000 and the annual real growth rate oftotal sales is 20%. Operating costs are expected to be 40% of the sales revenues. Sales andoperating costs numbers are presented in the following table:Year 0ItemsTotal salesOperating costs00120000800023424000288003456096001728020736The product requires an immediate investment of $60,000 in plant and equipment today. Theexpected nominal salvage value of the plant and equipment at the end of 4 years is $0. Plant andequipment is depreciated at 20% per year. The standard half-year depreciation rule applies.The corporate tax rate is 40% and annual discount rate for all cash flows is 12%.a. Compute the Initial UCC, annual CCA and End of Year UCC. Put your numbers in thefollowing table:YearInitial UCCCCAEnding UCC13000025400030000*20% = 600054000*20%24000=432001080034320043200*20% = 864034560434560691227648b. Compute the operating cash flows for each year.c. What is the NPV of this project? Should the firm undertake it?

Answer information:Q6.a-c. Present Value(PV) of Cash Flow: (Cash Flow)/((1+i)^N)…

Answered: Question 6 Jocelyn Chen & Bosco Lau…

EBK CFIN

6th Edition

ISBN:9781337671743

Author:BESLEY

Publisher:BESLEY

Chapter10: Project Cash Flows And Risk

Section: Chapter Questions

Problem 13PROB

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