Reference no: EM133111423
Your firm is considering investing in a small stand-alone plant.
It will be located on a site that the firm currently owns. The firm paid $2,000,000 for this site many years ago, and it is fully depreciated. The company recently spent $100,000 to upgrade the site, in preparation for the project under consideration. Last week, they had an offer from the county government to buy the location for $1,350,000.
The building and equipment needed for the operation will cost $2,700,000. These assets will be depreciated over six years by the straight-line method down to a value of zero. The operational life of this plant is equal to its six-year depreciable life. After six years you estimate that you can sell the equipment for $750,000. Assume that any capital gains or losses associated with the termination of the project will be treated at the firm's marginal tax rate.
Your marketing department estimates that annual sales will be $1,850,000. The accounting and engineering departments estimate that annual fixed costs to support this level of sales will be $275,000, and that variable costs will be 35% of sales.
You will need to maintain a level of $375,000 in net working capital to support this operation.
The firm's marginal income tax rate is 23%, and the required return on such investments is 11%.
(A) Estimate the appropriate after-tax value of the site where the operation is located.
(B) Is the cost for recent site renovation relevant?
(C) Estimate the annual operating cash flows this project will generate over its six-year life.
(D) Estimate the after-tax resell value of the equipment in year-six.
(E) What is the appropriate year-zero cash flow?
(F) What is the appropriate year-six cash flow?
(G) What is the payback period for the project?
(H) What is the internal rate of return for the project?
(I) What is the net present value for the project at 11%?
(J) Should you accept the project?
|
Show how the equity method income from vie is compute
: The fair value and book value of the identifiable net assets of the Legal entity equals $840,000. Show how the Equity method income (loss) from VIE is computed
|
|
Why are adjustments needed at end of an accounting period
: Why are adjustments needed at the end of an accounting period? Describe the nature of the assets that compose the following sections of a balance sheet
|
|
What is the earnings and earnings growth of amazon
: What is the earnings and earnings growth of Amazon over the last 18 month period: is it realizing great returns to its shareholders compared to its peers? You n
|
|
Assignment on accounts payable
: A chain of appliance stores, APP Corporation, purchases inventory with a net price of $250,000 each day. The company purchases the inventory under the credit te
|
|
Estimate the appropriate after-tax value
: It will be located on a site that the firm currently owns. The firm paid $2,000,000 for this site many years ago, and it is fully depreciated.
|
|
Case study-williams industries
: Williams Industries has decided to borrow money by issuing perpetual bonds with a coupon rate of 8.5 percent, payable annually, and a par value of $1,000. The o
|
|
Bond nominal yield to call-jerome corporation
: The bond has a 5.0% nominal yield to maturity, but it can be called in 6 years at a price of $1,050. What is the bond's nominal yield to call?
|
|
Calculate the standard deviation of returns
: You are considering an investment in either individual stocks or a portfolio of stocks. The two stocks you are researching. Stock A and Stock B, have the follow
|
|
Calculate the standard deviation of returns
: You are considering an investment in either individual stocks or a portfolio of stocks. The two stocks you are researching. Stock A and Stock B, have the follow
|