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FIN322 Advanced Business Finance
Major Assignment
Spring 2012

Due Date: By 4pm on 8 Oct 2012 (Monday in Session Week 11)

Place for
Submission: A hard copy of the assignment should be placed in the assignment box outside the front-office of the School of Accounting and Finance located in level 3, building 40. This box will be removed at 4 pm on the due day.

A soft copy should be sent to your tutor by email by the due date.

Penalty for
Late Submission: Any assignment received after that time will be penalised by a deduction of 20% for each day late (or part thereof). Any late assignment should be submitted to the subject coordinator directly.

Format: A written submission is required from each …show more content…

This market allows higher margins; TOM Tyres expects to sell the SuperTread for $59 per tyre there. Variables costs are the same as in the OEC market.

TOM Tyres intends to raise prices at 1 percent above the inflation rate; variable costs will also increase at 1 percent above the inflation rate. In addition, the SuperTread project will incur $25 million in marketing and general administration costs the first year. This cost is expected to increase at the inflation rate in the subsequent years.

TOM Tyres’ corporate tax rate is 40 percent. Annual inflation is expected to remain constant at 3.25 percent. Automotive industry analysts expect automobile manufacturers to produce 2 million new cars this year and production to grow at 2.5% per year thereafter. Each new car needs four tyres (the spare tyres are undersized and are in a different category). TOM Tyres expects the SuperTread to capture 11 percent of the OEM market.

Industry analysts estimate that the replacement tyre market size will be 14 million tyres this year and that it will grow at 2 percent annually. TOM Tyres expects the SuperTread to capture an 8% market share.

The appropriate depreciation schedule for the equipment is the seven-year MACRS depreciation schedule. The immediate initial working capital requirement is $11 million. Thereafter, the net working capital requirements will be

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