User Account

All Pages

Finance: Scenario Analysis, Financial Management

Assignment Help:
Scenario analysis
Your firm, Agrico Products, is considering a tractor that would have a cost of $35,000, would increase pretax operating cash flows before taking account of depreciation by $12,000 per year, and would be depreciated on a straight-line basis to zero over 5 years at the rate of $7,000 per year, beginning the first year. (Thus, annual cash flows would be $12,000 before taxes plus the tax savings that result from $7,000 of depreciation.) The managers are having a heated debate about whether the tractor would actually last 5 years. The controller insists that she knows of tractors that have lasted only 4 years. The treasurer agrees with the controller, but he argues that most tractors actually do give 5 years of service. The service manager then states that some last for as long as 8 years.
Given this discussion, the CFO asks you to prepare a scenario analysis to determine the importance of the tractor''s life on the NPV. Use a 40% marginal federal-plus-state tax rate, a zero salvage value, and a 10% WACC. Assuming each of the indicated lives has the same probability of occurring (probability = 1/3), what is the tractor''s expected NPV? (Hint: Use the 5-year straight-line depreciation for all analyses and ignore the MACRS half-year convention for this problem.)
Round your answers to two decimal places. Do not round intermediate calculations.
a. Tractor''s NPV if actual life is 5 years. $__________
b. Tractor''s NPV if actual life is 4 years. $_________
c. Tractor''s NPV if actual life is 8 years. $__________
d. Tractor''s expected NPV. $__________

Related Discussions:- Finance: Scenario Analysis

Valuation of shares , Example based on Valuation of Shares Share capit...

Example based on Valuation of Shares Share capital details & Types of Share Hatsun Agro private limited (HAPL) as on March 2008 had a total authorized share capital worth

Operating cycle, discuss the applicability of an operating cycle of a veget...

discuss the applicability of an operating cycle of a vegetable growing business

Define mutually exclusive projects, Provide three examples of mutually excl...

Provide three examples of mutually exclusive projects. Mutually exclusive projects are projects which participate against each other for our selection.  If a organization and fir

Explain efficient capital market & capital structure theory, Explain the Ef...

Explain the Efficient Capital Market and Capital Structure Theories? Briefly Explain the following expressions: (1) Efficient Capital Market, (2) Capital Structure Theori

Case study , MV METALWORKS

MV METALWORKS

Return on equity, Your quantitative analysis will describe the financial st...

Your quantitative analysis will describe the financial strength of you company using the metrics we discussed in class. You may use other measures at your discretion, but the follo

Alternative dividend policies, The managing directors of three profitable l...

The managing directors of three profitable listed companies discussed their companies' dividend policies at a business lunch. Company A ; has deliberately paid no dividends for

State about the equity owners, State about the equity owners Flip side...

State about the equity owners Flip side of the coin is that the equity owners are also owners of all the profits which remain after all the debt holders are paid their interes

Define which proposed capital budgeting projects to accept, For a specified...

For a specified IOS and MCC, how do financial managers decide that which proposed capital budgeting projects to accept, and which to reject? For a specified IOS and MCC, all inde

Define inventory is sometimes thought of as a necessary evil, Inventory is ...

Inventory is sometimes thought of as a necessary evil.  Explain. Inventory ties up funds and these types of funds are not earning an explicit return.  A few inventory is often es

Write Your Message!

Captcha
Order Assignment

Featured Services

Order Now

Popular Subjects

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!

Submit Assignment

Academics

Major Subjects

Majors

Get In Touch

whatsapp: +91-977-207-8620

Phone: +91-977-207-8620

Email: [email protected]

TERMS & POLICIES

HELP & SUPPORT

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