Reference no: EM13508925
Question
Solar Uninterruptible Nanoparticle (SUN) installs solar panels. SUN is evaluating a proposal that they lease the solar panels to customers as opposed to selling them.
The average annual maintenance cost for each installation is $150. The administrative costs for SUN are a fixed $250,000 annually. SUN purchases the panels from a manufacturer for $2,500 as needed. A forecast is that they could lease 10,000 installations in year 1 at a price of $1244 annually ($100 month compounded at 8% APR). After year 1, installations are expected to grow 20% annually. The planning horizon is 5 years.
Working capital requirements are for inventory only as each leased installation is considered as being in SUN's inventory. The inventory value of each solar installation is its purchase cost.
Although SUN will treat the solar panels as inventory rather than an investment in their financial statements, they would own the leased panels and therefore can depreciate these. They will do this using straight line depreciation over 5 years based on the cost of the unit and the total number of units they have installed . There is no salvage value for the solar panels.
SUN will borrow the funds for the investment in solar panels at a rate of 8%, which is used as the MARR. The tax rate for SUN is 14%.
The Income and cash flow statements are shown below. It is not your assignment to critique the Income and Cash flow statements as the CEO has developed and approved these. Your tasks are the following.
a How many customers will be needed in Year 0 to break even, measured by the present worth = 0, if the lease price per unit is $1,245?
b What leasing price would have to be charged to achieve a present worth of $1 million at a quantity of 10,000 customers for the first year?
| Data Block |
|
|
|
|
|
|
Annual Lease Price |
$1,245 |
each |
|
|
|
|
Year 1 quantity |
10,000 |
|
|
|
|
|
Annual % increase |
20% |
|
|
|
|
|
Cost for each installation |
$2,500 |
|
|
|
|
|
Maintenance Costs |
$150 |
annual |
|
|
|
|
Fixed Costs |
$800,000 |
annually |
|
|
|
|
MARR |
8% |
|
|
|
|
|
Tax Rate |
14% |
|
|
|
|
|
Time span |
5 |
|
|
|
|
|
Salvage |
$0 |
|
|
|
|
|
|
1 |
2 |
3 |
4 |
5 |
|
Quantity |
10,000 |
12,000 |
14,400 |
17,280 |
20,736 |
|
Total Units Installed |
$10,000 |
$22,000 |
$36,400 |
$53,680 |
$74,416 |
|
Lease Price each |
$1,245 |
$1,245 |
$1,245 |
$1,245 |
$1,245 |
|
Revenue |
$12,450,000 |
$27,390,000 |
$45,318,000 |
$66,831,600 |
$92,647,920 |
|
Inventory Value each |
$2,500 |
$2,500 |
$2,500 |
$2,500 |
$2,500 |
|
Total Inventory Value |
$25,000,000 |
$55,000,000 |
$91,000,000 |
$134,200,000 |
$186,040,000 |
|
Depreciation (SL over 5 years) |
$5,000,000 |
$11,000,000 |
$18,200,000 |
$26,840,000 |
$37,208,000 |
| Income Statement |
|
|
|
|
|
|
|
1 |
2 |
3 |
4 |
5 |
|
Revenue |
$12,450,000 |
$27,390,000 |
$45,318,000 |
$66,831,600 |
$92,647,920 |
|
COGS |
($1,500,000) |
($3,300,000) |
($5,460,000) |
($8,052,000) |
($11,162,400) |
|
Gross Profit |
$10,950,000 |
$24,090,000 |
$39,858,000 |
$58,779,600 |
$81,485,520 |
|
Fixed Costs |
($800,000) |
($800,000) |
($800,000) |
($800,000) |
($800,000) |
|
Depreciation |
($5,000,000) |
($11,000,000) |
($18,200,000) |
($26,840,000) |
($37,208,000) |
|
EBIT |
$5,150,000 |
$12,290,000 |
$20,858,000 |
$31,139,600 |
$43,477,520 |
|
Taxes |
($412,000) |
($983,200) |
($1,668,640) |
($2,491,168) |
($3,478,202) |
|
Net Income |
$4,738,000 |
$11,306,800 |
$19,189,360 |
$28,648,432 |
$39,999,318 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Cash Flow |
|
|
|
|
|
|
|
1 |
2 |
3 |
4 |
5 |
|
Net Income |
$4,738,000 |
$11,306,800 |
$19,189,360 |
$28,648,432 |
$39,999,318 |
|
Depreciation |
$5,000,000 |
$11,000,000 |
$18,200,000 |
$26,840,000 |
$37,208,000 |
|
Working Capital (Inventory) Change |
($25,000,000) |
($30,000,000) |
($36,000,000) |
($43,200,000) |
($51,840,000) |
|
Cash Flow |
($15,262,000) |
($7,693,200) |
$1,389,360 |
$12,288,432 |
$25,367,318 |
|
|
' |
|
|
|
|
|
Present worth |
$6,672,693 |
|
|
|
|
|
B-c method for evaluations determine should be chosen
: Determine which ones should be chosen Explain your recommendation - Using a B/C method for evaluations,
|
|
Find the value of the resistive force
: A small, spherical bead of mass 3.05 g is released from rest at t = 0 in a bottle of liquid shampoo. The terminal speed is observed to be vT = 1.80 cm/s. Find the value of the resistive force when the bead reaches terminal speed
|
|
Explains changes in your community
: Explore your community with a camera and notebook. Photograph and make note of changes that have taken place since the civil rights movements and related legislation of the 1960’s.
|
|
Illustrate how to overload the operators
: Use the class rectangletype to illustrate how to overload the operators
|
|
What leasing price would have to be charged
: How many customers will be needed in Year 0 to break even, measured by the present worth = 0, if the lease price per unit is $1,245 - what leasing price would have to be charged to achieve a present worth of $1 million at a quantity of 10,000 cu..
|
|
Conflict and functionalist perspectives on the issue
: Select either sex or race and discuss some of the various issues of inequality faced by everyday people among that category. Include sociological concepts and good logic and also the conflict and functionalist perspectives on the issue?
|
|
Determine the time to reach maximum height
: A projectile is fired with an initial speed of 113 m/s at an angle of 60.0° above the horizontal from the top of a cliff 49.0 m high. determine the time to reach maximum height
|
|
Determine the velocity of each object after impact
: An object of mass 3.0 kg and travelling at 2.0 m/s collides head-on with a 2.0 kg object travelling in the opposite direction at 3.0 m/s. Determine the velocity of each object after impact
|
|
Stages of technological development
: The United States is now in which of the following stages of technological development?
|