Prepare a capital-budgeting analysis

Assignment Help Accounting Basics
Reference no: EM132013488

Problem - Mr. LaGrande discussed the product with the food lab that had designed it, with the market research department that had tested it, and with the finance people who would have to fund its introduction. After putting all the information together, he developed the following optimistic and pessimistic sales projections:

The optimistic predictions assume that the introduction of a popular product is successful. The pessimistic predictions assume that the product is introduced but does not gain wide acceptance and is terminated after 5 years. LaGrande thinks that the most likely results are halfway between the optimistic and pessimistic predictions.


Optimistic

Pessimistic

Year 1

$1,800,000

$1,000,000

Year 2

3,800,000

1,400,000

Year 3

5,200,000

1,200,000

Year 4

8,200,000

1,000,000

Year 5

10,200,000

600,000

LaGrande learned from finance that this type of product introduction requires a predicted rate of return of 16% before top management will authorize funds for its introduction. He also determined that the contribution margin should be about 50% on the product, but could be as low as 42% or as high as 58%. Initial investment would include $3 million for production facilities, $2.5 million for advertising and other product introduction expenses, and $1.5 million for working capital (e.g., inventory). The production facilities would have a value of $800,000 after 5 years.

Prepare a capital-budgeting analysis to determine whether to launch the product.

Reference no: EM132013488

Questions Cloud

How communicable illness affect your community : Choose 3 population based communicable illness and prepare an analysis discussing how this 3-communicable illness affect your community.
Importance of classifying the activities correctly : Discuss the importance of classifying the activities correctly. How does each area impact the statement of cash flows?
What is meant by ratio analysis : What is meant by ratio analysis and How ratio analysis may be used to predict an individual firms stock price - Pick an actual company firm on the New York
What is the total value of ipo : What is the total value of this IPO if the required return for similar issues is 18%?
Prepare a capital-budgeting analysis : The optimistic predictions assume that the introduction of a popular product is successful. Prepare a capital-budgeting analysis
Financial reports included in the annual report : Financial reports included in the annual report. Financial Statement, Balance sheet, income statement, and statement of cash flow.
How nutrition can impact the health issue : Describe one health issue and discuss how nutrition can impact this health issue positively and negatively. Example obesity, diabetes mellitus, anemia.
What is the total book value of debt : a) What is the total book value of debt? b) What is the total market value of debt? c) What is the aftertax cost of debt?
How genetic and genomics can play a role in a demand : Discuss how genetic and genomics can play a role in a demand for new health services and how it may impact health care expenditures in the aging population.

Reviews

Write a Review

Accounting Basics Questions & Answers

  How much control does fed have over this longer real rate

Hubbard argues that the Fed can control the Fed funds rate, but the interest rate that is important for the economy is a longer-term real rate of interest.   How much control does the Fed have over this longer real rate?

  Coures:- fundamental accounting principles

Coures:- Fundamental Accounting Principles: - Explain the goals and uses of special journals.

  Accounting problems

Accounting problems,  Draw a detailed timeline incorporating the dividends, calculate    the exact Payback Period  b)   the discounted Payback Period. the IRR,  the NPV, the Profitability Index.

  Write a report on internal controls

Write a report on Internal Controls

  Prepare the bank reconciliation for company

Prepare the bank reconciliation for company.

  Cost-benefit analysis

Create a cost-benefit analysis to evaluate the project

  Theory of interest

Theory of Interest: NPV, IRR, Nominal and Real, Amortization, Sinking Fund, TWRR, DWRR

  Liquidity and profitability

Distinguish between liquidity and profitability.

  What is the expected risk premium on the portfolio

Your Corp, Inc. has a corporate tax rate of 35%. Please calculate their after tax cost of debt expressed as a percentage. Your Corp, Inc. has several outstanding bond issues all of which require semiannual interest payments.

  Simple interest and compound interest

Simple Interest, Compound interest, discount rate, force of interest, AV, PV

  Capm and venture capital

CAPM and Venture Capital

Free Assignment Quote

Assured A++ Grade

Get guaranteed satisfaction & time on delivery in every assignment order you paid with us! We ensure premium quality solution document along with free turntin report!

All rights reserved! Copyrights ©2019-2020 ExpertsMind IT Educational Pvt Ltd