Because of the success of the new spicy sausages, Silvio's Sausage Factory has come up with another new line of sausages the impossible sausages. Silvio has already paid $75,000 for another marketing study to determine the viability of the product. It is belived that the new line of sausages will enerate sales for each year of: year 1 $625,000, Year 2 $650,000, Year 3 $700,000 and year 4 $750,000. The fixed costs associated with with the product will be 315,000 per year, and variable costs will amount to 22% of sales. The equipment necessary for production of the new sausages will cost $596,000 and will be depeciated to zero using straight line deprectiation over 4 years. At the end of the four years Silvio believe that equipment will have a salvage value of $45,000. islvio'ss sausage paid 35% in taxes last year and has a required rate of return of 13%. No additional working capital is required. What is the initial cost of the project (the cash flow at time 0?

Because of the success of the new spicy sausages, Silvio's Sausage Factory has come up with another new line of sausages the impossible sausages. Silvio has already paid $75,000 for another marketing study to determine the viability of the product. It is belived that the new line of sausages will enerate sales for each year of: year 1 $625,000, Year 2 $650,000, Year 3 $700,000 and year 4 $750,000. The fixed costs associated with with the product will be 315,000 per year, and variable costs will amount to 22% of sales. The equipment necessary for production of the new sausages will cost $596,000 and will be depeciated to zero using straight line deprectiation over 4 years. At the end of the four years Silvio believe that equipment will have a salvage value of $45,000. islvio'ss sausage paid 35% in taxes last year and has a required rate of return of 13%. No additional working capital is required. What is the initial cost of the project (the cash flow at time 0?

Cornerstones of Cost Management (Cornerstones Series)

4th Edition

ISBN:9781305970663

Author:Don R. Hansen, Maryanne M. Mowen

Publisher:Don R. Hansen, Maryanne M. Mowen

Chapter16: Cost-volume-profit Analysis

Section: Chapter Questions

Problem 39P

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