EBK CORPORATE FINANCE
4th Edition
ISBN: 9780134202785
Author: DeMarzo
Publisher: VST
expand_more
expand_more
format_list_bulleted
Concept explainers
Videos
Question
Chapter 19, Problem 2P
Summary Introduction
To determine: The production capacity.
Introduction:
The business plan is a necessary tool for the firm to analyze and take decisions on the current and future events. The firm must concentrate on the investments, capital structure, and operations to improve its potentials and future growth of the business.
Summary Introduction
To discuss: The year in which the expansion is necessary.
Expert Solution & Answer
Want to see the full answer?
Check out a sample textbook solution
Students have asked these similar questions
MEINE ON
The table below gives a detailed forecast of the size of the market by production volume. Assume that KMS expects to capture 10.20% of the market share in 2019 and expects that percentage will
increase by 0.27% per year. KMS currently has the capacity to produce a maximum of 1,100,000 units. What production capacity will KMS require each year? When will an expansion become
necessary (that is, when will production volume exceed 1,100,000 units)?
Year
Production Volume (000 units)
Market Size
KMS's market share for 2019 is
KMS's market share for 2021 is
KMS's market share for 2022 is
2019
KMS's market share for 2023 is
10,412
11,570
The Tax Cuts and Jobs Act of 2017 temporarily allows 100% bonus depreciation (effectively expensing capital expenditures). However, we will still include depreciation forecasting in this chapter and
in these problems in anticipation of the return of standard depreciation practices during your career.
KMS's market share for 2024 is
2020
10,000
units.…
K
Assume that Ideko's market share will increase by 0.40 percent per year as shown in the table, (e.g., Ideko's
market share will be 10.00% in 2006). What production capacity will Ideko require each year for the next five years?
When will an expansion become necessary (i.e., when will production volume exceed the current level by 50%)?
e.
What production capacity will Ideko require each year for the next five years?
First compute the projected annual market share. Then, using these projections, calculate the projected annual
production volume: (Round the volumes to one decimal place and the percentage of market share to two
decimal places.)
dd
Sales Data
Market Size (000 units)
Market Share
Production Volume (000 units)
Data table
Growth/Year
2005
4.80%
0.40%
%
(Click on the following icon in order to copy its contents into a spreadsheet.)
- X
Ideko Sales Assumptions
Sales Data
Growth/Year
2005
Market Size (000 units)
Market Share
4.80%
10.000
0.40%
9.6%
Check answer
Based on table 7.3, what production capacity will Kappa require each year? When will and expansion be necessary?
Chapter 19 Solutions
EBK CORPORATE FINANCE
Ch. 19.1 - Prob. 1CCCh. 19.1 - Prob. 2CCCh. 19.2 - Prob. 1CCCh. 19.2 - Prob. 2CCCh. 19.3 - What is a pro forma income statement?Ch. 19.3 - Prob. 2CCCh. 19.4 - Prob. 1CCCh. 19.4 - Prob. 2CCCh. 19.5 - Prob. 1CCCh. 19.5 - Prob. 2CC
Ch. 19.6 - Prob. 1CCCh. 19.6 - Prob. 2CCCh. 19 - Prob. 1PCh. 19 - Prob. 2PCh. 19 - Prob. 3PCh. 19 - Prob. 4PCh. 19 - Under the assumptions that Idekos market share...Ch. 19 - Prob. 6PCh. 19 - Prob. 7PCh. 19 - Prob. 8PCh. 19 - Prob. 11PCh. 19 - Calculate Idekos unlevered cost of capital when...Ch. 19 - Using the information produced in the income...Ch. 19 - How does the assumption on future improvements in...Ch. 19 - Approximately what expected future long-run growth...Ch. 19 - Prob. 16P
Knowledge Booster
Learn more about
Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, finance and related others by exploring similar questions and additional content below.Similar questions
- What is the value of an investment opportunity that will pay GH¢5,060 next year, GH¢5,500 the year after and GH¢7,800 in the third year, assuming similar investment has a return of 14.5%?arrow_forwardConsider a project with an initial investment (today, t = 0) of $200,975. This project will generate cash flows of $49,500 per year for the next 8 years, at which time (end of Year 8) the company will pay $50,000 to another for clean-up and disposal. What is the Profitability Index (PI) of the project if shareholders demand a 16.295% return? Answer with a number rounded to three decimal places, e.g., 4.0877% should be entered as 4.088.arrow_forwardFinally, assume that the new product line isexpected to decrease sales of the firm’s otherlines by $50,000 per year. Should this be considered in the analysis? If so, how?arrow_forward
- Suppose Naboo Manufacturing's sales increase 20% over the next year. Assuming that all asset accounts change proportionately to sales, what is the external financing needed?arrow_forwardSuppose natural gas experiences a 1.8% increase per year in real terms over the foreseeable future. The cost of a 1,000 cubic feet of natural gas is now $7.50. Solve, a. What will be the cost in real terms of 1,000 cubic feet of natural gas in 22 years? b. If the general price inflation rate (e.g., the CPI) for the next 22 years is expected to average 3.2% per year, what will a 1,000 cubic feet of natural gas cost in actual dollars 22 years from now?arrow_forward3. We sometimes need to find out how long it will take a sum of money (or anything else) to grow to some specified amount. For example, if a company's sales for 2020 is $1000 and expected to grow at a rate of 10% per year, how long will it take sales to double?arrow_forward
- A company is considering an investment that will cost $759,000 and have a useful life of 6 years. The cash flows from the project are expected to be $450,000 per year in the first two years then $170,000 per year for the last 4 years. If the appropriate discount rate is 16.0 percent per annum, what is the NPV of this investment (to the nearest dollar)? Select one: O a. $316870 O b. $321617 O c. $1834870 O d. $439045arrow_forwardAnswer the following lettered questions on the basis of the information in this table: Amount of R&D, $ Millions Expected Rate of Return on R&D, % $ 10 16 20 14 30 12 40 10 50 8 60 6 Instructions: Enter your answer as a whole number. a. If the interest-rate cost of funds is 8 percent, what is this firm's optimal amount of R&D spending? million %24arrow_forwardAn operation manager expects that the new machine will generate the following streams of income: Year 1- Ᵽ 13, 240.25; Year 2 - Ᵽ 15, 780; Year 3 - Ᵽ18, 990.95; Year 4 - Ᵽ21, 500.50; Year 5 - Ᵽ25,000.00. What is the present value of these future payments if the assumed interest rate is 3.7% ? If a new technology can reduce the future cost of production in 6 years at the following rate: Ᵽ8,550, Ᵽ10,200, Ᵽ13,600, Ᵽ 15,000, Ᵽ12,500, Ᵽ9000 what is present value of the future cost of production assuming that the interest is 6.33%? If the cost of the new technology in Item No. 2 is Ᵽ 52,435.60, what is the net present value? Should you buy or not the new technology?arrow_forward
- Consider a project with an initial investment (today, t = 0) of $225,000. This project will generate cash flows of $68,750 per year for the next 6 years. The company will pay $50,000 to another for clean-up and disposal in Year 6. What is the Profitability Index (PI) of the project if shareholders demand 8.25% return? Answer in whole numbers, rounded to three decimal places.arrow_forwardYou are examining a new project. You expect to sell 7,000 units per year at €60 net cash flow apiece for the next 10 years. The relevant discount rate is 16 per cent, and the initial investment required is €1,800,000. a. What is the base-case NPV? b. After the first year, the project can be dismantled and sold for €1,400,000. If expected sales are revised based on the first year’s performance, when would it make sense to abandon the investment? In other words, at what level of expected sales would it make sense to abandon the project? c. Explain how the €1,400,000 abandonment value can be viewed as the opportunity cost of keeping the project in one yeararrow_forwardConsider this scenario: Ultimate Electric, Inc. has just developed a solar panel capable of generating 200% more electricity than any solar panel currently on the market. As a result, Ultimate is expected to experience a 15% annual (nonconstant) growth rate for the next five years (supernormal period). When the five-year period ends, other firms will have developed comparable technology, and Ultimate's growth rate will slow to 5% per year (constant) indefinitely. Stockholders require a return of 12% on Ultimate's stock. The firm's most recent annual dividend (D0), which was paid yesterday, was $1.75 per share. What is the current price (P0) of the stock today? $9.4787 What is the market value (price) at the end of Year 5? $3.0608 Answer this question: Consider the scenario in Question 2 and suppose your boss regards Ultimate as being quite risky; therefore, your boss believes that the required rate of return should be higher than the 12% originally specified. What is the…arrow_forward
arrow_back_ios
SEE MORE QUESTIONS
arrow_forward_ios
Recommended textbooks for you
Capital Budgeting Introduction & Calculations Step-by-Step -PV, FV, NPV, IRR, Payback, Simple R of R; Author: Accounting Step by Step;https://www.youtube.com/watch?v=hyBw-NnAkHY;License: Standard Youtube License