Dakeu Clip UI-UOCS IOt introduce the new product. How would the loss of chiprevenue due to the defection of Morten customers to other brands affect yourupunyanalysis of incremental sales? Discuss (no computations required).(Determining relevant cash flows) Landcruisers Plus (LP) has operated an onlineretail store selling off-road truck parts. As the name implies, the firm specializes inparts for the venerable Toyota FJ40, which is known throughout the world for itsdurability and off-road prowess. The fact that Toyota stopped building and export-ing the FJ40 to the U.S. market in 1982 meant that FJ40 owners depended more andmore on remanufactured parts to keep their beloved off-road vehicles running. Moreand more FJ40 owners are replacing the original inline six-cylinder engines with amodern American-built engine. The engine replacement requires mating the new en-gine with the Toyota drive train. LP's owners had been offering engine adaptor kitsfor some time but have recently decided to begin building their own units. To makethe adaptor kits, the firm would need to invest in a variety of machine tools costing atotal of $700,000.LP's management estimates that the company willits bank and pay 8 percent interest. The remaining funds would have to be suppliedby LP's owners. The firm estimates that it will be able to sell 1.000 units a year for$1.300 each. The units would cost $1,000 each in cash expenses to produce (thisdoes not include depreciation expense of $70,000 per year or interest expense of$32,000). After all expenses, the firm expects earnings before interest and taxes of$198,000. The firm pays taxes equal to 30 percent, which results in net income of$138,600 per year over the 10-year expected life of the equipment.able to borrow $400,000 froma. What is the annual free cash flow LP should expect to receive from the invest-ment in Year 1, assuming that it does not require any other investments in eithercapital equipment or working capital and that the equipment is depreciated over a10-year life to a zero salvage and book value? How should the financing cost as-sociated with the $400.000 loan be incorporated into the analysis of cash flow?b. If the firm's required rate of return for its investments is 10 percent and the invest-ment has a 10-year expected life, what is the anticipated NPV of the investment?

The capital budgeting is a tool that helps to analyze the profitability of the project and helps the…

Mortén customers to other sales? Discuss (no computations re a flows) Landcruisers Plus (LP) has I truck parts. As the name implies, t wota FJ40, which is known througho wess. The fact that Toyota stopped arket in 1982 meant that FJ40 owne arts to keep their beloved off-road replacing the original inline six-cy gine. The engine replacement requi train. LP's owners had been offerin ently decided to begin building the ould need to invest in a variety of s that the company will be able to nterest. The remaining funds woul stimates that it will be able to sell ld cost $1,000 each in cash expen: on expense of $70,000 per year or 5, the firm expects earnings before kes equal to 30 percent, which res 10-year expected life of the equip ash flow LP should expect to rece g that it does not require any other king capital and that the equipme age and book value? How shoulc DO loan be incorporated into the a = of return for its investments is 10 ted life what is the anticipated N

Mortén customers to other sales? Discuss (no computations re a flows) Landcruisers Plus (LP) has I truck parts. As the name implies, t wota FJ40, which is known througho wess. The fact that Toyota stopped arket in 1982 meant that FJ40 owne arts to keep their beloved off-road replacing the original inline six-cy gine. The engine replacement requi train. LP's owners had been offerin ently decided to begin building the ould need to invest in a variety of s that the company will be able to nterest. The remaining funds woul stimates that it will be able to sell ld cost $1,000 each in cash expen: on expense of $70,000 per year or 5, the firm expects earnings before kes equal to 30 percent, which res 10-year expected life of the equip ash flow LP should expect to rece g that it does not require any other king capital and that the equipme age and book value? How shoulc DO loan be incorporated into the a = of return for its investments is 10 ted life what is the anticipated N

Essentials Of Investments

11th Edition

ISBN:9781260013924

Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Chapter1: Investments: Background And Issues

Section: Chapter Questions

Problem 1PS

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Media Mogul Inc. is a marketing company that offers a variety of marketing offerings to its customers. Specifically: •Media will create a TV commercial for $1M, build an app for $500K, and build a Facebook page for $250K. These amounts represent Media’s charges for these items when Media sells them separately to customers. The TV commercial, the app, and the Facebook page are not interrelated; that is, each functions independently of the other offerings. •If a customer purchases all aforementioned items together, the total cost is $1.5M. Payment terms are 50 percent consideration due at contract signing, with the remaining 50 percent due over the rest of the development period (25 percent at mid-point, 25 percent at completion). •If the app is downloaded 500K times or more in the first month, there is a one-time bonus of $250K payable to Media. Stone, a customer, approaches Media with the hopes of reinventing its image to a younger customer base. Stone has a verbal agreement with Media…
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