Determine what would be lowest bid of sfi , Macroeconomics

Assignment Help:

Snake Farm Inc. (SFI) has been offered to submit a competitive bid for building 31 and 22, 18, and 11offshore pits per year for Athletic Inc. over the next four years.  If the bid is accepted, SFI will be also construct 49, 51, 27, and 13 offshore pits per year for the next four year for other clients at a guaranteed price of $153 million per pit. SFI will be spending $2,400M in new capital spending in order to build these pits.  Each pit costs $72 million in materials.  To run the facilities in which the pits are going to be built, SFI has to spend $1,100M annually in fixed costs.  SFI needs to increase its net working capital initially by $701M and every year after with 15% of the next year's change in sales.  SFI can sell the facilities and equipment for $700M in four years.  SFI uses an accelerated depreciation method which has the following schedule: Year 1, 16%Year 2, 44%; Year 3, 26%; Year 4, 9%; Year 5, 6%.  SFI's cost of capital is 20%.  SFI has a hurdle IRR rate of 30% to accept any new projects. SFI's tax rate is 45%. SFI's WACC is 20%.  SFI would set up a separate corporate entity to do this project and thus there are no subsidizations across divisions. Income tax is treated differently from the capital gain/loss taxes.

A.  What is the lowest bid that SFI can make without violating the capital budgeting criterion for accepting new projects, if there are no tax-loss-carry provisions?

B.  Determine what would be lowest bid that SFI can make without violating the capital budgeting criterion for accepting new projects, IF (1) the depreciation method is changed to straight-line (for 4 years with zero accounting salvage value) and (2) there exist a carry forward (indefinitely in future) tax loss provision?


Related Discussions:- Determine what would be lowest bid of sfi

Aggregate supply and the as curve, Aggregate supply and the AS curve ...

Aggregate supply and the AS curve The AS curve is the aggregate supply as a function of P. It is horizontal when thesupply is low and upward sloping when the s

Calculate average and probability , 1 .Use the concepts of sampling error a...

1 .Use the concepts of sampling error and z- scores to explain the concept of distribution of sample  means. (this is a paragraph answer needed) 2. Describe the distribution

Aggregate supply in the long run, In the short run, the discrepancy between...

In the short run, the discrepancy between actual and expected price level causes changes in output and employment. But in the long run, if all other things remain constant, the hig

BALANCE OF PAYMENTS, explain any two factors that cause the shifts in the b...

explain any two factors that cause the shifts in the balance of payments curve.

The aggregate demand curve, The aggregate demand curve shows the combinatio...

The aggregate demand curve shows the combinations of the price level and the level of output at which the goods and money markets are simultaneously in equilibrium. Let us now go o

Evaluate the additional social loss, A monopoly has a total cost function o...

A monopoly has a total cost function of C(Q) = 8Q and faces a market demand Q = 100 ? 2p, (a) calculate the deadweight loss; (b) The firm now spent an amount equal to half of

Elucidate elasticity of supply using the midpoint formula, An attorney supp...

An attorney supplies 40 hours of work per week when her fee is $100 per hour but supplies 60 hours of work per week when her fee rises to $120 per hour. Using the midpoint formula,

Production economic .., One constraint in our economy is time. As a society...

One constraint in our economy is time. As a society, we make choices about the allocation of time between work and other pursuits. In the US, most workers are eligible for overtime

Calculate the number average molecular weight, You have two bags of polymer...

You have two bags of polymer. Bag A has 10 kgs of polymer with weight average molecular weight of 336.6 kg and Bag B has 20kg of polymer with weight average molecular weight 392.7k

Define ndp, The following is the information from the national income accou...

The following is the information from the national income accounts for a hypothetical country: GDP

Write Your Message!

Captcha
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