Ask Question, Ask an Expert

+1-415-315-9853

info@mywordsolution.com

Ask Financial Management Expert

Problem:

Alert Ltd is the Mauritian-based company dealing in business procedure outsourcing sector. Wycom plc, has outsourced the appraisal of all projects under USD2 million to Alert Ltd.

Wycom  plc is the stock market listed company which manufactures panels for vans. The business is profitable and demand has been rising. The machine at the company is dated and the company is measuring whether to replace it. The new machine would cost $1,500, 000 to purchase plus $180 000 in shipping costs and installation. The machine would have a useful life of 6years and would be depreciated down to zero on the straight line basis. As a result of the new machine, revenues will raise by $400 000 per annum over its 6year life, and the machine will also generates cost savings of $200 000 per annum.

There will be extra stock required for the new machine; this is expected to be $120 000. Accounts payable will raise as a result of the new machine as will accounts receivable, by $80 000 and $100 000 correspondingly. These figures are anticipated to remain constant till the end of the project at which time the investment in working capital will be completely recouped.

The new machine will require the employ of an extra depot for storage; the depot is being rented out at moment for $100 000 a year, however would become employed by the project if the project was adopted. The machine will require a full overhaul at end of 3years; this is expected to cost $100 000. A mechanic which already works for the company will be assigned to maintain the new machine; his salary is $60 000 a year. The company will have to fill his previous position.

The old machine, which has the book value of $300 000 and 3 years of life left, will be sold if the project is accepted for $200 000. It is expected that the new machine will be sold at the end of project for $240 000. The project is a routine replacement project for company; it is small in size in relation to the company. The company is currently 25% financed by debt; there is an unalterable bond (coupon rate 8%) outstanding with which is priced at $94.12 (Nominal value, $100) in the market. The risk free rate of interest is 5%. The company’s equity has the beta of 1.384. Wycom faces a tax rate of 30% levied on accounting profits in the year in which profit is reported.  The average stock market risk premium is 6%.

Required:

Demonstrate with, supporting computations, whether or not the project must be accepted.

Financial Management, Finance

  • Category:- Financial Management
  • Reference No.:- M99766

Have any Question? 


Related Questions in Financial Management

A loan of 60000 is due 10 years from today the borrower

A loan of $60,000 is due 10 years from today. The borrower wants to make annual payments at the end of each year into a sinking fund that will earn compound interest at an annual rate of 10 percent. What will the annual ...

A euro-based mnc will receive c40 million in 3 months based

A Euro-based MNC will receive C$40 million in 3 months. Based on the following information, implement two hedging strategies for the MNC. Which hedging strategy would you recommend? Explain. Spot rate €0.9422/C$ 3-month ...

Stevensons bakery is an all-equity firm that has projected

Stevenson's Bakery is an all-equity firm that has projected perpetual earnings before interest and taxes of $138,000 a year. The cost of equity is 13.7 percent and the tax rate is 32 percent. The firm can borrow money at ...

An investment will pay you 89000 in four years assume the

An investment will pay you $89,000 in four years. Assume the appropriate discount rate is 8.25 percent compounded daily. What is the present value? Explain the distinction between a stock's price and its intrinsic value ...

Assume that managers of hbo hospital are setting the price

Assume that managers of HBO Hospital are setting the price on a new outpatient service. Here are relevant data estimates: Variable cost per visit                         $27.00 Annual Direct Fixed Costs                 $ ...

1 make up a set of 10 scores such that the set of scores

1. Make up a set of 10 scores such that the set of scores has a mean approximately equal to 30 and a standard deviation approximately equal to 5. (Hint: Sketch a frequency distribution graph similar to The graph should s ...

1 the james company has been offered a 4-year loan from its

1. The James Company has been offered a 4-year loan from its bank in the amount of $100,000 at a stated interest rate of 10 percent per year. The loan will require four equal end-of-year payments of principal and interes ...

On june 17 of a particular year an american watch dealer

On June 17 of a particular year, an American watch dealer decided to import 100,000 Swiss watches. Each watch costs SF225. The dealer would like to hedge against a change in the dollar/Swiss franc exchange rate. The forw ...

Project evaluationyour firm is contemplating the purchase

Project Evaluation: Your firm is contemplating the purchase of a new $625,000 computer-based order entry system. The system will be depreciated straight-line to zero over its five-year life. It will be worth $69,000 at t ...

A project has the following estimated data price 72 per

A project has the following estimated data: price = $72 per unit; variable costs = $46 per unit; fixed costs = $21,000; required return = 15 percent; initial investment = $42,000; life = six years. Ignoring the effect of ...

  • 4,153,160 Questions Asked
  • 13,132 Experts
  • 2,558,936 Questions Answered

Ask Experts for help!!

Looking for Assignment Help?

Start excelling in your Courses, Get help with Assignment

Write us your full requirement for evaluation and you will receive response within 20 minutes turnaround time.

Ask Now Help with Problems, Get a Best Answer

WalMart Identification of theory and critical discussion

Drawing on the prescribed text and/or relevant academic literature, produce a paper which discusses the nature of group

Section onea in an atwood machine suppose two objects of

SECTION ONE (a) In an Atwood Machine, suppose two objects of unequal mass are hung vertically over a frictionless

Part 1you work in hr for a company that operates a factory

Part 1: You work in HR for a company that operates a factory manufacturing fiberglass. There are several hundred empl

Details on advanced accounting paperthis paper is intended

DETAILS ON ADVANCED ACCOUNTING PAPER This paper is intended for students to apply the theoretical knowledge around ac

Create a provider database and related reports and queries

Create a provider database and related reports and queries to capture contact information for potential PC component pro