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

Claim for refund, Claim for Refund - A refund isn't automatically mailed if...

Claim for Refund - A refund isn't automatically mailed if one is due. A taxpayer whether individual orbusiness, should file a request on a form. It should also be filed within the

Case study, what are the assumptions of MM(Modigliani Miller) approach

what are the assumptions of MM(Modigliani Miller) approach

Explain about book value weights, Q. Explain about Book Value Weights? ...

Q. Explain about Book Value Weights? Book Value Weights: - Book value weights are calculating form the values taken from the balance sheet. The weight to be assigned to every s

Foreign and domestic investments, What risks are associated with direct for...

What risks are associated with direct foreign investment? How do these risks differ from those encountered in domestic investment?

Define intermediation, Define intermediation . The monetary system mak...

Define intermediation . The monetary system makes it possible for deficit and surplus economic units to come together exchanging funds for securities to their mutual benefit.

Capital structure theory, Capital structure theory: Use the following ...

Capital structure theory: Use the following information to answer the questions: Case I: Capital structure theory ( no tax ) Case II: Capital struct

State about investment decision, State about Investment decision Dec...

State about Investment decision Decisions relating to investment in both current and capital assets. Finance manager has to evaluate different capital investment proposalsan

Major risk return decision areas, Q. Major Risk Return Decision Areas? ...

Q. Major Risk Return Decision Areas? 1) Financial Analysis and Control: This area is concerned with the Financial Statements, i.e. Income Statement, Balance Sheet, Funds Flow S

Find the minimum earnings, Milan Corporation is interested in buying a mach...

Milan Corporation is interested in buying a machine that will cost $50,000, and it will depreciate it on straight-line basis over a 5-year period. The machine is expected to last f

Show internal business risk, Internal business risk associated with the ope...

Internal business risk associated with the operational efficiency of the firm. The operational efficiency differs from company to company. The efficiency of operation is reflected

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