Determine and discuss capital projects

Assignment Help Managerial Accounting

Reference no: EM132475698

Problem 1: You work as a finance manager for Drill Tech, Inc., a mid-sized manufacturing company located in Minnesota. Three capital project requests were identified as potential projects for the company to pursue in the upcoming fiscal year. In the meeting to discuss capital projects, the director of finance (and your boss), Jennifer Davidson, gives you a synopsis of the projects along with this question: Which one of these projects will provide the most shareholder value to the company?

She also tells you that other than what is noted in each project scenario, all other costs will remain constant, and you should remember to only evaluate the incremental changes to cash flows.

Point 1: A major new marketing/advertising campaign, which will cost $2 million per year and last 6 years.

Point 2: It is forecast that the campaign will increase sales/revenues and costs of sales by 15% per year.

Point 3: Annual sales for the previous year were $20 million.

Point 4: The marginal corporate tax rate is presumed to be 25%.

Point 5: Being a moderate risk investment, the required rate of return of the project is 10%.

Reference no: EM132475698

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