HomeworkLib
Question

You are forecasting cash flows for a new investment.  You forecast working capital needs as a percentage...

You are forecasting cash flows for a new investment.  You forecast working capital needs as a percentage of revenues; should your fixed asset requirements also be as a percentage of revenues?  

business   finance   
0 0
Add a comment Improve this question Transcribed image text
Next > < Previous
Sort answers by oldest

Homework Answers

Answer #1

While determining the fixed assets requirements must be determined as per the sales capacity that will be needed to meet the demand forecasted and not necessarily as a percentage of revenue. Also, the asset turnover ratio is particularly more useful to determine the assets required to achieve the desired turnover. Determining the fixed assets as a percentage of revenues is particularly more useful in ascertaining the external financing needs of the business.

0 0
Add a comment
Know the answer?
Add Answer to:
You are forecasting cash flows for a new investment.  You forecast working capital needs as a percentage...
Your Answer:

Post as a guest

Your Name:

What's your source?

Earn Coins

Coins can be redeemed for fabulous gifts.

Log In

Sign Up

Not the answer you're looking for? Ask your own homework help question. Our experts will answer your question WITHIN MINUTES for Free.
Similar Homework Help Questions

  • ​You are asked to value a company and have the following forecast (in million dollars) of its future profits and future investments in new plant and working capital. From year 5 onwards, depreciation and investment in plants and working capital are expect

    You are asked to value a company and have the following forecast (in million dollars) of its future profits and future investments in new plant and working capital.                                                              Year1234Depreciation expenses20303540Profit after tax (tax: 40%)36424848Investment in plants   and working capital12151820 From year 5 onwards, depreciation and investment in plants and working capital are expected to remain unchanged at year-4 levels. The Shard is financed 50% by debt and 50% by equity. Its cost of equity is 15% and its debt yields...

  • Data: Opening Grant’s Emporium II The capital investment required for opening a new store is $1,500,000,...

    Data: Opening Grant’s Emporium II The capital investment required for opening a new store is $1,500,000, covering shop-fitting and other equipment such as cash registers etc. Additional working capital of $75,000 is also needed. The fixed costs of running a new store are $90,000 in the first year while variable costs, including labour costs, are $120,000. Both fixed and variable costs are expected to grow in line with inflation at 2 percent p.a. Forecast sales are $780,000 in the first...

  • Cash flows estimation and capital budgeting: You are the head of finance department in XYZ Company....

    Cash flows estimation and capital budgeting: You are the head of finance department in XYZ Company. You are considering adding a new machine to your production facility. The new machine’s base price is $10,000.00, and it would cost another $2,280.00 to install it. The machine falls into the MACRS 3-year class (the applicable MACRS depreciation rates are 33.33%, 44.45%, 14.81%, and 7.41%), and it would be sold after three years for $1,850.00. The machine would require an increase in net...

  • Revenues Expenses are generated by a new fad product are forecast as follows: Year Revenues 1...

    Revenues Expenses are generated by a new fad product are forecast as follows: Year Revenues 1 $65,000 2 $50,000 3 $40,000 4 $30,000 Thereafter 0 Expenses are expected to be 40% of revenues, and working capital required in each year is expected to be 20% of revenues in the following year. The product requires an immediate investment of $60,000 in plant and equipment. Required: a. What is the initial investment in the product? Remember working capital. b. If the plant...

  • Revenues generated by a new fad product are forecast as follows: Year Revenues 1 $60,000 2...

    Revenues generated by a new fad product are forecast as follows: Year Revenues 1 $60,000 2 45,000 3 30,000 4 10,000 Thereafter 0 Expenses are expected to be 40% of revenues, and working capital required in each year is expected to be 20% of revenues in the following year. The product requires an immediate investment of $60,000 in plant and equipment. a. What is the initial investment in the product? Remember working capital. b. If the plant and equipment are...

  • You are considering a new investment. Revenues, costs and spending on Net Working Capital are given...

    You are considering a new investment. Revenues, costs and spending on Net Working Capital are given in the table below. The tax rate is 35%. All net working capital is recovered at the end of the project. Year 1 Year 2 Year 3 Year 0 Investment $30,000 Sales Revenue Operating Costs Depreciation Net Working Capital Spending $400 $16,000 $3,000 $10,000 $450 $17,000 $3,200 $10,000 $350 $18,000 $3,400 $10,000 ? Suppose that the discount rate is 11.5 percent. What is the...

  • You are considering a new investment. Revenues, costs and spending on Net Working Capital are given...

    You are considering a new investment. Revenues, costs and spending on Net Working Capital are given in the table below. The tax rate is 35%. All net working capital is recovered at the end of the project. Year 1 Year 2 Year 3 Year o Investment $30,000 Sales Revenue Operating costs Depreciation Net Working Capital Spending $400 $16,000 $3,000 $10,000 $450 $17,000 $3,200 $10,000 $350 $18,000 $3,400 $10,000 ? Suppose that the discount rate is 10.1 percent. What is the...

  • To arrive at operating cash flows, you should start with _______, _______ non-cash items and then adding or subtracting changes in working capital.

    To arrive at operating cash flows, you should start with _______, _______ non-cash items and then adding or subtracting changes in working capital.

  • Cash flows estimation and capital budgeting: You are the head of finance department in XYZ Company....

    Cash flows estimation and capital budgeting: You are the head of finance department in XYZ Company. You are considering adding a new machine to your production facility. The new machine’s base price is $10,200.00, and it would cost another $2,890.00 to install it. The machine falls into the MACRS 3-year class (the applicable MACRS depreciation rates are 33.33%, 44.45%, 14.81%, and 7.41%), and it would be sold after three years for $1,850.00. The machine would require an increase in net...

  • Revenues generated by a new fad product are forecast as follows: Year Revenues $60,000 30,000 20,000...

    Revenues generated by a new fad product are forecast as follows: Year Revenues $60,000 30,000 20,000 10,000 m Thereafter 0 Expenses are expected to be 50% of revenues, and working capital required in each year is expected to be 10% of revenues in the following year. The product requires an immediate investment of $54,000 in plant and equipment. Required: a. What is the initial investment in the product? Remember working capital. b. If the plant and equipment are depreciated over...

ADVERTISEMENT
Free Homework Help App
Download From Google Play
Scan Your Homework
to Get Instant Free Answers
Need Online Homework Help?
Ask a Question
Get Answers For Free
Most questions answered within 3 hours.
ADVERTISEMENT
ADVERTISEMENT