To calculate the incremental net cash flow per year for years 1-19, we need to consider the increase in sales and costs, as well as the tax rate and the cost of equity and debt.
First, we need to calculate the annual increase in sales and costs:
Increase in sales = $27,400,000
Increase in costs = $10,000,000
To calculate the net cash flow per year, we subtract the increase in costs from the increase in sales:
Net cash flow per year = Increase in sales - Increase in costs
= $27,400,000 - $10,000,000
= $17,400,000
Since the equipment will be depreciated over 20 years, the net cash flow per year will remain the same for years 1-19.
Therefore, the incremental net cash flow per year for year 1-19 is $17,400,000.
None of the given answers for this question are the correct answer.
NuCar is evaluating the idea of adding manufacturing equipment to their plant: Pertinent information about this capital budgeting project is highlighted below: - Over the past 12 months. NuCar has spent $1,750,000 to make their manufacturing process more efficient. - The new manufacturing equipment will cost $75,600,000 fully installed. Thy equipment will be depreciated over 20 years to a salvage value of $0. NuCa uses straight-line depreciation. - If Nucar adds the new equipment, sales are expected to increase by $27,400,000 and costs are expected to increase by $10,000,000. - The appropriate tax rate for NuCar is 40%. - The firm's optimal capital structure is 65% equity and 35% debt. - The cost of equity is 17%, and the before-tax cost of debt is 9%. What is the incremental net cash flow per year of the project for year 1-19? 1) $11,826,000 2) $11,838,000 3) None of the given answers for this question are the correct answer. 4) $11,900,000 5) $11,952,000 6) $11,936,000
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1 answer