Orange Inc, the Cupertino-based computer manufacturer, has developed a new all-in-one device: phone, music-player, camera, GPS, and computer. The device is called the iPip. The following data have been collected regarding the iPip project
The company has identified a prime piece of real estate and must purchase it immediately for $100,000. In addition, R&D expenditures of $175,000 must be made immediately. During the first year the manufacturing plant will be constructed. The plant will be ready for operation at the end of Year 1. The construction costs are $500,000 and will be paid upon completion. At the end of the Year 1, an inventory of raw materials will be purchased costing $50,000. Production and sales will occur during years 2 and 3. (Assume that all revenues and operating expenses are received (paid) at the end of each year.) Annual revenues are expected to be $850,000. Fixed operating expenses are $100,000 per year and variable operating expenses are 25% of sales. The construction facilities are classified as 10-year property for tax-depreciation purposes. When the plant is closed it will be sold for $200,000. (Note: Assume the investment in plant is depreciated during years 2 and 3.) The land will be sold for $225,000 at the end of year 3. The tax rate on all types of income is 34%. The cost of capital is 12%. What is the undiscounted sum of the initial cash flows incurred at Year 0 and Year 1 for the iPip project?
MACRS Depreciation Rates
Year 10-Year 15-Year
1 10.00% 5.00%
2 18.00% 9.50%
3 14.40% 8.55%
A) -$100,000
B) -$175,000
C) -$275,000
D) -$550,000
E) -$825,000
E
You might also like to view...
Which of the following situations would most likely require observation or scientific experimentation?
A) You want to find out what tools are available to protect your computer network from hackers. B) You need to determine the average time it takes your employees to produce a single piece of furniture. C) You must find out which ten companies ranked highest for customer service in 2014. D) You want to verify your supervisor's opinion on upgrading your department's accounting software.
When preparing to work on a project, teams should name a meeting leader to plan and conduct meetings, a recorder to keep a record of group decisions, and an evaluator to determine whether the group is on target and meeting its goals
Indicate whether the statement is true or false
A limited partnership provides limited liability to:
A) all general partners. B) only limited partners responsible for day-to-day management of the firm's operations. C) only to limited partners who do not participate in the management of the business. D) all partners.
Race discrimination is the most common claim made under Title VII
a. True b. False Indicate whether the statement is true or false