Chat with AI
Cornerstones of Cost Management 2nd Edition by Don Hansen ,Maryanne Mowen
Edition 2ISBN: 978-1111824402Cornerstones of Cost Management 2nd Edition by Don Hansen ,Maryanne Mowen
Edition 2ISBN: 978-1111824402 Exercise 33
Net Present Value
Carsen Sorensen, controller of Thayn Company, just received the following data associated with production of a new product:
• Expected annual revenues: $750,000
• Projected product life cycle: five years
• Equipment: $800,000 with a salvage value of $100,000 after five years
• Expected increase in working capital: $100,000 (recoverable at the end of five years)
• Annual cash operating expenses: estimated at $450,000
• Required rate of return: 8 percent
Required:
1. Estimate the annual cash flows for the new product.
2. Using the estimated annual cash flows, calculate the NPV.
3. What if revenues were overestimated by $150,000? Redo the NPV analysis, correcting for this error. Assume the operating expenses remain the same.
Carsen Sorensen, controller of Thayn Company, just received the following data associated with production of a new product:
• Expected annual revenues: $750,000
• Projected product life cycle: five years
• Equipment: $800,000 with a salvage value of $100,000 after five years
• Expected increase in working capital: $100,000 (recoverable at the end of five years)
• Annual cash operating expenses: estimated at $450,000
• Required rate of return: 8 percent
Required:
1. Estimate the annual cash flows for the new product.
2. Using the estimated annual cash flows, calculate the NPV.
3. What if revenues were overestimated by $150,000? Redo the NPV analysis, correcting for this error. Assume the operating expenses remain the same.
Explanation
Verified
Verified
1. The annual cash flow for each year wi...
Cornerstones of Cost Management 2nd Edition by Don Hansen ,Maryanne Mowen
Why don’t you like this exercise?
Other Minimum 8 character and maximum 255 character
Character 255
