Ask Question, Ask an Expert

+1-415-315-9853

info@mywordsolution.com

Ask Basic Finance Expert

Double Reliable Electricity

We are at the end of 2020. Double Reliable Electricity is a private company in Elbonia. It is considering a proposal to launch a new product, in addition

to its existing product lines. This new product will be based on a recent discovery made in 2019 (the company holds a patent) which will give Double

Reliable a two-year lead on its present competitors. The forecasts, established by the accounting department, are listed on the following Table 1 (please

refer to notes to the forecasts, below).

You must :

(a) Test the accuracy, and consistency, of the future cash-flows. Which entries make sense ? Which do not ? Why or why not ?

(b) Tell what additional information you would need to construct a version of Table 1 that makes sense ?

(c) Construct such a table (call it Table 1bis) and compute the NPV (VAN). Make all assumptions that are necessary.

(d) List the items / assumptions / numbers that would change the NPV (VAN). Please choose the most important items (assumptions / numbers), in your

opinion, and give an estimate of the various NPVs (VANs).

Notes to the forecasts (please refer to Table 1)

Capital expenditure (Investissements)

8 million $ represent the cost of the new machinery, and 2,4 millions $ stand for a warehouse extension (for new inventories, which will take half of the

space of the new warehouse). The new machinery will be set up in the current factory, where there is room available (no extension needed). All investments can be made by the end of 2019.

collection of payments. This has been estimated at 4 million $.

Turnover (Ventes)

Sales for this project, in units sold are forecast as follows :

The price per unit is estimated to be fixed at 4 000 $ per unit. (Price remaining constant over the years).

Operating costs (coûts d'exploitation)

Direct and indirect operating costs represent 50% of the selling price.

Research and development

The patent comes from a successful research project, whose overall spending amounted to 1,94 million $ in 2019. This figure has been corrected for

3% inflation from the time of expenditure to date, that is 1,94 x (1+3%) = 2 million $.

Overhead costs (frais généraux et commerciaux)

Marketing and administrative costs for this project are estimated at 10% of sales.

Depreciation (amortissement)

Straight-line depreciation over 10 years.

Interest (intérêts sur dettes)

Financial expenses (interest on debt) generated by the financing of the project : capital expenditure + increase in operating working capital will be financed by a debt at a 5% interest rate.

Tax (impôt)

Tax rate is 35%. Losses on the project are carried forward and deducted from taxable income in the following year.

Net Present Value (Valeur Actuelle Nette)

Operating Working Capital (Besoin en Fonds de Roulement)

This new production will require an additional investment in Operating Working Capital to purchase inventories, pay employees and wait for the

Attachment:- 2014-01_Double_Reliable.pdf

Attachment:- 2014_Double_Reliable_Electric_Initial_Data.xls

Basic Finance, Finance

  • Category:- Basic Finance
  • Reference No.:- M914440
  • Price:- $60

Priced at Now at $60, Verified Solution

Have any Question? 


Related Questions in Basic Finance

You have been asked to evaluate the effects of a new

You have been asked to evaluate the effects of a new educational video that was developed to reduce racial prejudice among adolescents. You plan to administer a pretest measure of racial attitudes to 60 adolescent partic ...

Identifying the efficient portfolioconsider the omega fund

Identifying the Efficient Portfolio Consider the Omega Fund and real estate fund of Example 11.13. Suppose you have $100 million invested in the Omega Fund. In addition to this position, how much should you invest in the ...

1 what three rules govern the construction of a grouped

1. What three rules govern the construction of a grouped frequency distribution? 2. What is the difference between a histogram and a bar graph? 3. Distinguish among the median, mode, and mean.

Define each of the followinga call optionb put optionc

Define each of the following: a. Call option b. Put option c. Strike price d. Expiration date 2. How do the rights and obligations of options buyers and sellers differ from the rights and obligations of futures buyers an ...

1 what types of fees and conditions are prohibited under

1. What types of fees and conditions are prohibited under RESPA? 2. For what items may a lender require escrow accounts from a borrower?

1 why are planning and forecasting a global work force so

1. Why are planning and forecasting a global work force so difficult? 2. Why are so many countries bothered by their "brain drain"? 3. If you are given the opportunity in your next job to go on an extended foreign assign ...

The yield to maturity on 1-year zero-coupon bonds is

The yield to maturity on 1-year zero-coupon bonds is currently 6%; the YTM on 2-year zeros is 7%. The Treasury plans to issue a 2-year maturity coupon bond, paying coupons once per year with a coupon rate of 8.5%. The fa ...

A researcher was interested in the effects of weather on

A researcher was interested in the effects of weather on cognitive performance. He tested participants on either sunny or cloudy days, and obtained the following scores on a 10-item test of cognitive performance. Using t ...

1 outline the monetary system used in this country2 how

1. Outline the monetary system used in this country. 2. How does the Federal Reserve increase the money supply? 3. How does the Treasury raise money when it has to borrow? 4. Explain the major factors that influence inte ...

Gruber corp pays a constant 740 dividend on its stock the

Gruber Corp. pays a constant $7.40 dividend on its stock. The company will maintain this dividend for the next 8 years and will then cease paying dividends forever. The required return on this stock is 12 percent. What i ...

  • 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

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

Describe what you learned about the impact of economic

Describe what you learned about the impact of economic, social, and demographic trends affecting the US labor environmen