Reference no: EM132618503
Sprint Bolt Ltd is a producer of specialised sport shoes. The company has been conducting research and development of a new model, where the lower mould can automatically adjust itself to avoid foot injury. The model has been tested and the managing board is happy to launch its production if it is financially viable. The company has already spent $800,000 for research and development. The new model will have a fiveyear lifetime, after that the company will stop its production. The new production facilities and equipment will cost $22,000,000 which will be depreciated on a straight-line basis to zero book value. The company will not sell the equipment after the production of new product is finished. The company expects to sell 80,000 pairs in the first year at $300 per pair. As the new technique can be potentially followed by competitors, every year the sale quantity is expected to decrease by 10% and the sale price will decrease by 8%. Variable costs are expected to be 40% of sales. While the new model generates a high gross profit rate, the company expects a high level of product returns of 5% on sales. As a financial manager of the company, you're conducting a capital budgeting analysis of the financial viability of the new model. The company tax rate is 30%. Company's required payback is 2 years and required rate of return is 25%. Assume that all cash flows are made at the end of each year.
Problem a. Calculate the incremental cash flows for each year (Y0 to Y5 inclusive).
Problem b. Calculate the payback period of the project.
Problem c. Calculate the net present value, that is, the net benefit or net loss in present value terms of the project.
Problem d. Calculate the present value index of the project.
Problem e. Calculate the discounted payback period of the project.
Problem f. Calculate the internal rate of return of the project.
Problem g. Identify and explain what other factors Sprint Sport should consider. Explain if the company should accept the project or not.
Concept of comparable risk
: Explain how the discount rate incorporates the concept of comparable risk?
|
What is the value of the firm jump co
: Jump Co had assets with a book value of $450 million, and an ROIC of 22%. The company's tax rate is 35% and the average annual depreciation
|
What is the weighted average cost of capital
: Describe briefly the legal rights and privileges of common stockholders. What is free cashflow (FCF)? What is the weighted average cost of capital?
|
Calculate the compound rate of reduction in price
: The historic Virginia home that Confederate Gen. Robert E. Lee grew up in hit the market in April 2018 for $8.5 million. (Trapasso, C.)
|
Calculate the incremental cash flows for each year
: Calculate the incremental cash flows for each year.Calculate the net present value, that is, the net benefit or net loss in present value terms of the project.
|
What is the accumulated depreciation balance as of December
: The company will use the double declining balance depreciation method, What is the accumulated depreciation balance as of December 31, 2020
|
Define why patient is presenting with the specific symptoms
: At its core, pathology is the study of disease. Diseases occur for many reasons. But some, such as cystic fibrosis and Parkinson's Disease, occur because.
|
Challenges faced by financial managers
: Challenges faced by Financial Managers in a Changing Economic Environment
|
Compute the entry for February
: Office Equipment purchased for $30,000 January 1st, 2015 is amortized at the rate of 20% per year. Compute the entry for February
|