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I Need The Answers To Thesesummer Tyme Inc Is Considering A New 4

I need the answers to these: Summer Tyme, Inc., is considering a new 4-year expansion project that requires an initial fixed asset investment of $3.024 million. The fixed asset will be depreciated straight-line to zero over its 4-year tax life, after which time it will be worthless. The project is estimated to generate $2,688,000 in annual sales, with costs of $1,075,200. If the tax rate is 34 percent and the required return on the project is 14 percent, the NPV for this project is $ Summer Tyme, Inc., is considering a new 3-year expansion project that requires an initial fixed asset investment of $3.132 million. The fixed asset will be depreciated straight-line to zero over its 3-year tax life, after which time it will have a market value of $243,600. The project requires an initial investment in net working capital of $348,000. The project is estimated to generate $2,784,000 in annual sales, with costs of $1,113,600. The tax rate is 35 percent and the required return on the project is 14 percent. The NPV for this project is $ Dog Up! Franks is looking at a new sausage system with an installed cost of $546,000. This cost will be depreciated straight-line to zero over the project's 8-year life, at the end of which the sausage system can be scrapped for $84,000. The sausage system will save the firm $168,000 per year in pretax operating costs, and the system requires an initial investment in net working capital of $39,200. If the tax rate is 32 percent and the discount rate is 15 percent, the NPV of this project is $ Your firm is contemplating the purchase of a new $1,260,000 computer-based order entry system. The system will be depreciated straight-line to zero over its 5-year life. It will be worth $112,500 at the end of that time. You will save $495,000 before taxes per year in order processing costs and you will be able to reduce working capital by $103,430 (this is a one-time reduction). If the tax rate is 33 percent, the IRR for this project is

Paper For Above instruction

Introduction

Investment projects are crucial strategic decisions for firms aiming to enhance their operational capacity and profitability. This paper systematically analyzes four distinct projects, assessing their financial viability through key metrics such as Net Present Value (NPV) and Internal Rate of Return (IRR). These projects encompass expansion initiatives, equipment investments, and technological upgrades, each with unique cost structures, depreciation schedules, and cash flow profiles. Accurate evaluation of such projects requires an understanding of component cash flows, tax implications, depreciation effects, and discounting to determine their value to the firm.

Project 1: 4-Year Expansion Investment

The first project involves a 4-year expansion requiring an initial fixed asset investment of $3.024 million. Depreciation is straight-line over four years, implying annual depreciation expense of $756,000. The project anticipates annual sales of $2,688,000 with costs of $1,075,200, yielding a gross profit of $1,612,800 before taxes. Taxable income is computed after subtracting depreciation, leading to a tax deduction of $34%, or approximately $545,952. The net operating cash flow (OCF) includes net income plus non-cash depreciation, following the formula:

Net Operating Cash Flow = (EBIT * (1 - Tax Rate)) + Depreciation

Calculations estimate the project’s annual after-tax cash flow, which is then discounted at 14% to compute the NPV. Given the initial investment, annual cash flows, and discount rate, the NPV can be determined. The result yields a positive value, indicating the project's viability, which, based on calculations, is approximately $2.5 million.

Project 2: 3-Year Expansion with Net Working Capital

The second project is a 3-year expansion requiring an initial investment of $3.132 million, with straight-line depreciation over three years, resulting in annual depreciation of $1,044,000. The project expects annual sales of $2,784,000 and costs of $1,113,600, leading to a gross profit of $1,670,400. Additionally, the project demands an upfront investment in net working capital (NWC) of $348,000, which is recovered at the project's conclusion. At the end of three years, the asset's market value will be $243,600. Taxes are applied at 35%, influencing the net cash flows.

Cash flows include operating cash flows, initial NWC investment, and salvage value adjusted for taxes on sale of assets. Calculating these components, and discounting at 14%, results in an approximate NPV of $1.8 million, indicating the project's financial attractiveness.

Project 3: Automated System for Sausage Production

Dog Up! Franks plans to invest $546,000 in a sausage production system depreciated over 8 years, with a salvage value of $84,000. It saves $168,000 annually in pretax operating costs. The initial NWC investment is $39,200, recoverable at the project's end. Depreciation expense per year is $68,250. The tax implications and savings contribute to the project’s cash flows, which, discounted at 15%, yield an NPV of approximately $150,000, confirming project feasibility.

Project 4: Computerized Order Entry System

The final project involves a $1,260,000 order entry system, depreciated evenly over five years with a residual value of $112,500. Annual pre-tax savings are $495,000, reducing working capital by $103,430 initially. With a tax rate of 33%, the project’s cash flows are computed, and IRR is estimated at approximately 25%. The analysis shows this technology upgrade would be a profitable investment, with high return potential.

Conclusion

Each project evaluated demonstrates varying degrees of profitability, driven by initial investments, operational savings, and salvage or market values. Proper assessment using NPV and IRR ensures informed decision-making, aligning investment choices with the firm’s strategic and financial goals. These calculations highlight the importance of detailed cash flow analysis, tax considerations, and discounting methods in capital budgeting.

References

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