Optimal corporation wants to expand their manufacturing facilities. They have two choices, first to expand the current site at a cost of $290,000 per year for two years to complete the expansion, or to sell their current site for $1.3 million and purchase a new larger facility at a cost of $900,000 in the industrial zone. If the annual interest rate is 8%, evaluate the cash flows for the two options described above and decide which is the most financially beneficial to the corporation? If Optimal corporation wants to factor inflation in their calculations, what is the equivalent nominal interest rate if expected inflation rate is 4% in the coming years? Critically discuss the significance of including the factor of inflation in corporate finance calculations
Optimal corporation wants to expand their manufacturing facilities. They have two choices, first to expand the current site at a cost of $290,000 per year for two years to complete the expansion, or to sell their current site for $1.3 million and purchase a new larger facility at a cost of $900,000 in the industrial zone.
- If the annual interest rate is 8%, evaluate the cash flows for the two options described above and decide which is the most financially beneficial to the corporation?
- If Optimal corporation wants to factor inflation in their calculations, what is the equivalent nominal interest rate if expected inflation rate is 4% in the coming years? Critically discuss the significance of including the factor of inflation in corporate finance calculations
Expert Answer
Related Finance Q&A
Q: Should the following be included in Sneakers 2013 capital budgeting cash flow projection? why or why...
A: Framework:In general a cash flow with the following features are included in the capital budgeting:I...
Q: Alternatives 1,2, and 3 have lives of 3,4, and 6 years, respectively. Their net cash flow (NCF) and ...
A: Alternatives 1, 2& 3 have lives 3, 4 & 6 years respectively.Part (a)LCM (3, 4, 6) = 12Repeat...
Q: Please show all equations and work as needed. Make the correct answer clear. If possible, please typ...
A: If C0 is the cost to purchase the machine, S is the salvage value at the end of year n and C is the ...
Q: The Perfect Rose Co. has earnings of $2.10 per share. The benchmark PE for the company is 10. ...
A: a.Calculation of Stock Price:The appropriate stock price is $21.
Q: Requirement 1: At 5 percent interest, how long does it take to double your money? (Enter rounded ans...
A: Requirement 1:Interest Rate (rate) = 5% Assumption:Present Value of Money (PV) = $1Future Value of M...
Q: You found the following stock quote for DRK Enterprises, Inc., at your favorite website. You also fo...
A: a) Calculation of closing price of the stock on yesterday:Answer:The closing price of stock on yeste...
Q: A flour mill is considering buying a new jumbo sifter, which would have an installed cost of $80,000...
A: Since we only answer up to 3 sub-parts, we’ll answer the first 3. Please resubmit the question and s...
Q: The XYZ Company paid $1.25 dividend yesterday. Its dividend growth rate is expected to be constant a...
A: Current price of stock will consist present value of all future dividend.The below expression will h...
Q: You have $1000 to invest, and you have two options: Option A: 1.725% compounded semiannually Option ...
A: (a) Calculation of Annual Percentage Yield:The annual percentage yield for Option A is 1.732% Option...
