Reference no: EM13815824
Parker Products manufactures a variety of household products. The company is considering introducing a new detergent. The company’s CFO has collected the following information about the proposed product. (Note: You may or may not need to use all of this information, use only the information that is relevant.)
The project has an anticipated economic life of 4 years.
The company will have to purchase a new machine to produce the detergent. The machine has an up-front cost (t = 0) of $1.6 million. The machine will be depreciated on a straight-line basis over 5 years (that is, the company’s depreciation expense will be $320,000 in each of the first four years (t = 1, 2, 3, and 4). The company anticipates that the machine will be sold when the project expires at a salvage value of $400,000.
If the company goes ahead with the proposed product, it will have an effect on the company’s net operating working capital. At the outset, t = 0, inventory will increase by $140,000 and accounts payable will increase by $40,000. At t = 4, the net operating working capital will be recovered after the project is completed.
The detergent is expected to generate sales revenue of $1 million the first year (t = 1), $2 million the second year (t = 2), $2 million the third year (t = 3), and $1 million the final year (t = 4). Each year the operating costs (not including depreciation) are expected to equal 50 percent of sales revenue.
The company’s interest expense each year will be $100,000.
The new detergent is expected to reduce the after-tax cash flows of the company’s existing products by $146,000 a year (t = 1, 2, 3, and 4).
The company’s overall WACC is 10 percent. However, the proposed project is riskier than the average project for Parker; the project’s WACC is estimated to be 11 percent.
The company’s tax rate is 30 percent.
1. What is the net present value of the proposed project?
2. The Parker Products’ policy is to recover the cost of this type of project within 3 years. What is the payback period for the project?
3. What should Parker Products do about this project? Accept or reject? Provide arguments for your answer.
|
Demand schedule-demand curve-supply schedule
: Explain the following concepts: demand schedule, demand curve, supply schedule, supply curve. Then, list the determinants of demand and explain how a change in each determinant affects the demand curve. Do the same for the supply.
|
|
Using the normal distribution
: Using the normal distribution, find the probability that a population with a mean of 35 and a standard deviation of 8 will produce a sample mean of less 34 in a sample of size 64.
|
|
Find the population mean and the standard deviation
: Assume that you have a box with an equal number of $4, $6, $8 chips. Find the population mean and the standard deviation. Taking samples of size n = 2, find the mean of the sample means and the standard deviation of the sample means. Explain the rela..
|
|
List and briefly summarize 10 major sections of standards
: 1) The international standard for security (ISO 17799) documents a set of best practices for information systems security. List and briefly summarize the 10 major sections of the standard.
|
|
Manufactures a variety of household products
: Parker Products manufactures a variety of household products. The company is considering introducing a new detergent. The company’s CFO has collected the following information about the proposed product. What is the net present value of the proposed ..
|
|
Implement permissions using sql statements
: Create a matrix to indicate the permissions (read, insert, delete, modify) you would grant to different users of your database.Create at least two different users and implement their permissions using SQL statements.
|
|
The equilibrium price in the market represents
: Increasing prices act as a signal to: The equilibrium price in the market represents the: Rising oil prices during the 1970s shifted flower production from California to Kenya. Which of the following answers explains this shift?
|
|
Policy analysis market-prediction market for political event
: After the September 11th attacks, one division of the Pentagon began to set up a Policy Analysis Market (PAM), a prediction market for political events in the Middle East. Suppose Chad believes that the price of oil will be higher in the future and b..
|
|
The address space of the workstation
: A high speed workstation has 64 bit words and 64 bit addresses with address resolution at the byte level. a. How many words can in be in the address space of the workstation?
|