Already have an account? Get multiple benefits of using own account!
Login in your account..!
Remember me
Don't have an account? Create your account in less than a minutes,
Forgot password? how can I recover my password now!
Enter right registered email to receive password!
You are an analyst in the corporate finance department of Pet Products, Inc. You have been asked to analyze a potential new product to be introduced. The beef-flavored water will be called "Meaty Drink." The beef flavouring will be artificial, of course, so as to not close the market to vegan pets. The entire project can be squeezed into a small portion of a warehouse already in use without detrimentally affecting other projects.
Your colleague in the research and development department sent along the following partial spreadsheet of project cash flows and levels to get you started in your analysis. Although you assume the numbers are accurate (at least, accurate conditionally based on your colleague's data and analysis) you suspect that you will have to make major adjustments the spreadsheet so that you can analyze a proper set of relevant incremental cash flows.
Item
Notes
t=0
t=l
t=2
t=3
t=4
t=5
t=6
Sales
All numbers are in millions; i.e., 250 means250 million.
250
Product testing
Sales estimates come from the marketing tests we completed last week; total costs of the testing were 12
12
Variable costs
23% of sales
57.5
Fixed costs
We have to charge the new project an allocation of our current and on-going electricity and rent costs; no other fixed operating costs.
10
New equipment
Purchase cost incurred immediately, but we cannot expense it; instead we will deduct the depreciation
100
Depreciation
Depreciated straight-line to zero over 10-yearaccounting life
Book value of assets
Start with initial cost and mark down by the depreciation
90
80
70
60
50
40
Resale of equipment
Estimate based on historical data; assumes project terminates at time 6
Taxes
Rate is 40% for income and capital gains; left calculating the levels for the analysts.
?
Net Working Capital
Assume we recapture all NWC at termination
99
Interest
Payments
We are going to finance the project with an equity issue, but our current interest payments on our debt are 200 per year; tax deduction makes the relevant cash flow200*40% = 80
Dividends
We are going to issue 100 worth of equity to finance the project; current dividend yield is 5%, so relevant cash flow is 5
5
Q. Conclusion on Overtrading? The majority of the evidence suggests that our company is moving into an overtrading situation, although the evidence is not conclusive. Current p
An accountant made the following adjustments at December 31, the end of the accounting period: a. Prepaid insurance, beginning, $400. Payments for insurance during the period, $1,2
Choose a share from a market such as LSE, NYSE, NASDAQ, etc. [Data sources could be Datastream, Google Finance or others]. Prepare a report which involves the following aspects: -
Interest revenue: At the end of 2012, a manufacturer sells machinery to a customer for $90,000. $30,000 is paid immediately, and the customer signs a promissory note for the r
a. Explain a major factor which led to the introduction of International Financial Reporting Standards (IFRS). b. Explain how users of financial information benefit from IFRS.
In January 2013, Mitzu Co. pays $2,600,000 for a tract of land with two buildings on it. It plans to demolish Building I and build a new store in its place. Building 2 will be a co
BANKRUPTCY ACCOUNTS FOR INDIVIDUALS AND PARTNERSHIPS These include a statement of affairs and deficiency account. A statement of affairs takes the following form: v\:*
48 Morgado Inc. has provided the following data to be used in evaluating a proposed investment project: Initial investment $130,000 Annual cash receipts $78,000 Life of th
How is a company’s cost of capital affected by its tax rate?
The following market data are available for interest rates and volatilities associated with standard maturities: Suppose you are holding a bond portfolio which invests in a
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!
whatsapp: +91-977-207-8620
Phone: +91-977-207-8620
Email: [email protected]
All rights reserved! Copyrights ©2019-2020 ExpertsMind IT Educational Pvt Ltd