EBK CONTEMPORARY FINANCIAL MANAGEMENT
14th Edition
ISBN: 9781337514835
Author: MOYER
Publisher: CENGAGE LEARNING - CONSIGNMENT
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Assume that the company, where you are working as a team in Financial Department, is considering a potential project with a new product that is expected to sell for an average price of $22 per unit and the company expects it can sell 650 000 unit per year at this price for a period of 4 years. Launching this project will require purchase of a $3 500 000 equipment that has residual value in four years of $500 000 and adding $ 850 000 in working capital which is expected to be fully retrieved at the end of the project. Other information is available below:
Depreciation method: straight line
Variable cost per unit: $17
Cash fixed costs per year: $450 000
Discount rate: 10%
Tax Rate: 30%
Need scenario analysis with cash flows of the assumed project to determine the sensitivity of the project's NPV to different scenarios that are defined in terms of the estimated values for each of the project's value drivers. Please work on two scenarios corresponding to the worst- and best-case…
Assume that the company, where you are working as a team in Financial Department, is considering a potential project with a new product that is expected to sell for an average price of $22 per unit and the company expects it can sell 650 000 unit per year at this price for a period of 4 years. Launching this project will require purchase of a $3 500 000 equipment that has residual value in four years of $500 000 and adding $ 850 000 in working capital which is expected to be fully retrieved at the end of the project. Other information is available below:Depreciation method: straight line Variable cost per unit: $17Cash fixed costs per year: $450 000 Discount rate: 10%Tax Rate: 30%Do a scenario analysis with cash flows of the assumed project to determine the sensitivity of the project’s NPV to different scenarios that are defined in terms of the estimated values for each of the project’s value drivers. Please work on two scenarios corresponding to the worst- and best-case outcomes for…
As the new engineer in the company, you are tasked to send out a proposal for an expansion of the current manufacturing plant. As per research, you came up with a summary of the capital needed and it is amounting to Php 18,500,000.00. Annual depreciation is noted as well as 10% of your capital invested. You are asked to determine the rate of return if your projected annual profit is at Php 5,500,000.00. Express the answer in percentage, up to two decimal places/digits.
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- Manzer Enterprises is considering two independent investments: A new automated materials handling system that costs 900,000 and will produce net cash inflows of 300,000 at the end of each year for the next four years. A computer-aided manufacturing system that costs 775,000 and will produce labor savings of 400,000 and 500,000 at the end of the first year and second year, respectively. Manzer has a cost of capital of 8 percent. Required: 1. Calculate the IRR for the first investment and determine if it is acceptable or not. 2. Calculate the IRR of the second investment and comment on its acceptability. Use 12 percent as the first guess. 3. What if the cash flows for the first investment are 250,000 instead of 300,000?arrow_forwardYou are a financial analyst for the Hittle Company. The director of capital budgeting has asked you to analyze six proposed capital investments. Each project has a cost of $1,000, and the required rate of return for each is 12%, determine for each project (a) the internal rate of return. Assume under MACRS the asset falls in the three-year property class and that the corporate tax rate is 25 percent. You are limited to a maximum expenditure of $3000 only for this capital budgeting period. Which projects you will accept and why? Justify your suggestionsarrow_forwardAssume that are the financial manager of a company, which is considering a potential project with a new product that is expected to sell for an average price of $22 per unit and the company expects it can sell 350 000 unit per year at this price for a period of years. Launching this project will require purchase of a $2 000 000 equipment that has residual value in four years of $200 000 and adding $ 600 000 in working capital which isexpected to be fully retrieved at the end of the project. Other information is available below:Depreciation method: straight lineVariable cost per unit: $11Cash fixed costs per year $350 000Discount rate: 10%Tax Rate: 30% Do an analysis with cash flows of the project to determine the sensitivity of the project NPV with the following changes in the value drivers and provide your results in (a) relevant tables:Unit sales decrease by 10%Price per unit decreases by 10%Variable cost per unit increases 10%Cash fixed cost per year increases by 10%arrow_forward
- Assume that are the financial manager of a company, which is considering a potential project with a new product that is expected to sell for an average price of $22 per unit and the company expects it can sell 350 000 unit per year at this price for a period of 4 years. Launching this project will require purchase of a $2 000 000 equipment that has residual value in four years of $200 000 and adding $ 600 000 in working capital which isexpected to be fully retrieved at the end of the project. Other information is available below: Depreciation method: straight lineVariable cost per unit: $11Cash fixed costs per year $350 000Discount rate: 10%Tax Rate: 30% Do an analysis with cash flows of the project to determine the sensitivity of the project NPVwith the following changes in the value drivers and provide your results in (a) relevant tables: Unit sales decrease by 10%Price per unit decreases by 10%Variable cost per unit increases 10%Cash fixed cost per year increases by 10%arrow_forwardDuring the last few years, Helney Industries has been too constrained by the high cost of capital to make many capital investments. Recently, though, capital costs have been declining, and the company has decided to look seriously at a major expansion program proposed by the marketing department. Assume that you are an assistant to Leigh Jones, the financial vice president. Your first task is to estimate Helney’s cost of capital. Jones has provided you with the following data, which she believes may be relevant to your task:(1) The firm’s tax rate is 40%.(2) The current price of Harry Davis’s 12% coupon, semi-annual payment, noncallable bonds with 15 years remaining to maturity is $1,225.72. Helney does not use short-term interest-bearing debt on a permanent basis.(3) The current price of the firm’s 10%, $100 par value, quarterly dividend, perpetual preferred stock is $117.(4) Helney’s common stock is currently selling at $50 per share. Its last dividend (D0) was $3.12, and dividends…arrow_forwardAssume that you are the financial manager of a company, which is considering a potential project with a new product that is expected to sell for an average price of $22 per unit and the company expects it can sell 350 000 unit per year at this price for a period of 4 years. Launching this project will require purchase of a $2 000 000 equipment that has residual value in four years of $200 000 and adding $ 600 000 in working capital which is expected to be fully retrieved at the end of the project. Other information is available below: Depreciation method: straight line Variable cost per unit: $11 Cash fixed costs per year $350 000 Discount rate: 10% Tax Rate: 30% Required: Do an analysis with cash flows of the project to determine the sensitivity of the project NPV with the following changes in the value drivers and provide your results in (a) relevant tables: Unit sales decrease by 10% Price per unit decreases by 10% Variable cost per unit increases 10% Cash fixed cost per year…arrow_forward
- You are a manager at Percolated Fiber, which is considering expanding its operations in synthetic fiber manufacturing. Your boss comes into your office, drops a consultant's report on your desk, and complains, "We owe these consultants $ 1.1 million for this report, and I am not sure their analysis makes sense. Before we spend the $ 29 million on new equipment needed for this project, look it over and give me your opinion." You open the report and find the following estimates (in millions of dollars): Project Year Earnings Forecast ($ million) 1 2 . . . 9 10 Sales revenue 28.00028.000 28.00028.000 28.00028.000 28.00028.000 minus−Cost of goods sold 16.80016.800 16.80016.800 16.80016.800 16.80016.800 equals=Gross profit 11.20011.200 11.20011.200 11.20011.200 11.20011.200 minus−Selling, general, and administrative expenses 2.3202.320 2.3202.320 2.3202.320 2.3202.320…arrow_forwardDuring the last few years, Harry Davis Industries has been too constrained by the high cost of capital to make many capital investments. Recently, though, capital costs have been declining, and the company has decided to look seriously at a major expansion program proposed by the marketing department. Assume that you are an assistant to Leigh Jones, the financial vice president. Your first task is to estimate Harry Davis’ cost of capital. Jones has provided you with the following data, which she believes may be relevant to your task: •The firm’s tax rate is 35%. •The current price of Harry Davis’ 12.5% coupon, semiannual payment, noncallable bonds with 15 years remaining to maturity is $1105.67. Harry Davis does not use short-term interest-bearing debt on a permanent basis. New bonds would be privately placed with no flotation cost. •The current price of the firm’s 10%, $100 par value, quarterly dividend, perpetual preferred stock is $114.27. Harry Davis would incur flotation costs…arrow_forwardDuring the last few years, Harry Davis Industries has been too constrained by the high cost of capital to make many capital investments. Recently, though, capital costs have been declining, and the company has decided to look seriously at a major expansion program proposed by the marketing department. Assume that you are an assistant to Leigh Jones, the financial vice president. Your first task is to estimate Harry Davis’ cost of capital. Jones has provided you with the following data, which she believes may be relevant to your task: •The firm’s tax rate is 35%. •The current price of Harry Davis’ 12.5% coupon, semiannual payment, noncallable bonds with 15 years remaining to maturity is $1105.67. Harry Davis does not use short-term interest-bearing debt on a permanent basis. New bonds would be privately placed with no flotation cost. •The current price of the firm’s 10%, $100 par value, quarterly dividend, perpetual preferred stock is $114.27. Harry Davis would incur flotation costs…arrow_forward
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