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

Assignmentcareers in financefinance is an exciting field in

Assignment Careers in Finance Finance is an exciting field in need of intelligent, skilled people. The job opportunities range from corporate finance; financial planning; investment banking; insurance; and real estate fr ...

Consider the following listing for 10-year treasury note

Consider the following listing for 10-year Treasury note futures on the Chicago Board of Trade. One futures contract for Treasury notes = $100,000 face value of 10-year 6% notes. a. If on this day you bought two contract ...

If asset as beta is greater than asset bs beta does this

If asset A's beta is greater than asset B's beta, does this mean that asset A has more risk than asset B? Explain? What is the difference between the security market line and the capital market line? How should an invest ...

Compute the intrinsic values time values and lower bounds

Compute the intrinsic values, time values, and lower bounds of the following calls. Identify any profit opportunities that may exist. Treat these as American options for purposes of determining the intrinsic values and t ...

A multiple-choice test consists of 7 questions each

A multiple-choice test consists of 7 questions. Each question has answer choices of a, b, c, and d, and only one of the choices is correct. If a student randomly guesses on each question, what is the probability that she ...

1 devise a register-allocation strategy on the assumption

1. Devise a register-allocation strategy on the assumption that we automatically store all registers on the stack before each procedure call and restore them after the return. 2. Construct the register-interference graph ...

A newly issued 10 year bond is valued at par on june 1 2017

A newly issued 10 year bond is valued at par on June 1, 2017. The bond has an annual coupon of 8.0 percent. On June 1 2020, the bond has a yield to maturity of 7.1 percent. The first coupon is invested at 8.0 percent and ...

Explain the difference between path-dependent options and

Explain the difference between path-dependent options and path-independent options and give examples of each ? Give an example of a situation in which someone might wish to use a barrier option ? Explain the advantages a ...

If futures prices are less than spot prices the explanation

If futures prices are less than spot prices, the explanation usually given is the convenience yield. Explain what the convenience yield is. Then identify certain assets on which convenience yields are more likely to exis ...

Discussionresearch a company with an international presence

Discussion Research a company with an international presence. Describe the type of work performed; measures that the company's industry area uses for productivity; and the pitfalls and promise that the metrics provide. W ...

  • 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