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Unformatted text preview: Grayson Products The Sequel It's been two months since you took a position as an assistant financial analyst at Grayson Products. Your next assignment involves both the calculation of cash flows associated with a new investment under consideration and the evaluation of several mutually exclusive projects. Currently, Grayson is in the 35 percent marginal tax bracket with a 14 percent required rate of return or cost of capital. This project is expected to last five years and then, because this is somewhat of a fad project, to be terminated. The following information describes the new project: __________________________________________________________________________ Cost of new plant and equipment : $9,750,000 Shipping and installation costs : $ 250,000 Unit sales : Year Units Sold 1 75,000 2 125,000 3 145,000 4 85,000 5 65,000 Sales price per unit : $325/unit in years 1-4, $245/unit in year 5 Variable cost per unit : $160/unit Annual fixed costs : $220,000 Working-capital requirements : There will be an initial working-capital requirement of $175,000 just to get production started. For each year, the total investment in net working capital will be equal to 10 percent of production started....
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This note was uploaded on 01/06/2012 for the course BUS M 201-1 taught by Professor Jennlarson during the Fall '11 term at BYU.
- Fall '11