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Based on the inputs below prepare a capital budget analysis for this Base Case using the Net Present Value, Internal Rate of Return, Profitability Index and Payback in years methods, determining whether the project is feasible. Please show your spreadsheet calculations and your final determinations of “go” or “no go” on the project. Use your Capital Budget Analysis from Week #6 as an example for this analysis. Project Inputs: WACC – Debt is 75% and Equity is 25% of this firm’s capital structure. Interest rate on the debt is 7.5%, firm’s tax rate is 30%. Firm’s beta is 1.25, Risk Free Rate is 2.0%, Market Return Rate is 11.0%. Project Investment Outlay, Year 0 - $1,000,000 Project Investment Life – 10 years Project Depreciation - $100,000 / year Project Salvage Value - $30,000 Working Capital Base of Annual Sales – 10% Expected inflation rate per year – 3.0% Project Tax Rate – 30% Units sold per year – 40,000 Selling Price per Unit, Year 1 - $40.00 Fixed operating costs per year excluding depreciation - $175,000 Manufacturing (Variable) costs per unit, Year 1 - $30.0
A three-year continuous annuity pays a total of $100 during the first year, $400 during the second year, and $1,000 during the third year. Within each year, the payments are made continuously and evenly throughout the year. The effective annual inter..
Strudler Real Estate, Inc., a construction firm financed by both debt and equity, is undertaking a new project. If the project is successful, the value of the firm in one year will be $320 million, but if the project is a failure, the firm will be wo..
A firm has decided to replace a major piece of industrial equipment. The equipment costs $690,000 to purchase and install and is expected to have a useful life of 5 years, after which it will be sold on the open market and is expected to have a salva..
Which two of the six methods used to evaluate projects, and to decide whether or not they should be accepted, do you prefer as a financial manager? Explain why you decided on these two and not the other four. List the perceived deficiencies of the fo..
What is the maximum you could afford to spend (P0) on an electronic device that is guaranteed for ten years (N) which is projected to decrease this year's labor costs by $8000 if you expect labor costs to increase 5% per year and you use 10% (i) as y..
The new field behavioural finance applies concepts from other social science, such as anthropology, sociology, and particularly psychology, to understand the behaviour of securities prices. Can you explain why trading volume is so high, stock prices ..
If a company isn't public - or better said is a small, private company - should they still comply with record keeping standards? Why?
The IRS is revaluating the asset life categories used for ACRS depreciation. The trucks that JK Industries use are currently classified by the IRS as having an asset life of 7 years. Because these trucks actually last for 10 years, the firm’s manager..
Given a company's pressure to meet earnings forecast, discuss how earnings manipulation is most likely to occur.
Operating Cash Flow In comparing accounting net income and operating cash flow, name two items you typically find in Net Income that are not in Operating Cash Flow. Explain why each is excluded from Operating Cash Flow.
What break-even resale price in three years will make you indifferent between buying and leasing?
Owen has been researching the stock price of TechNoMagic, Inc. and has noticed that it follows a consistent cyclical pattern in the last few years. What annual rate of return (EAR) could Owen potentially earn if he purchased 100 shares at the end of ..
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