Ask Question, Ask an Expert


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

Assume on a recent day the january 2017 sampp index futures

Assume on a recent day, the January 2017 S&P Index futures contract (i.e., the S&P contract which expires in January of next year) closed at 2000, down 40 points on the day. The value of the contract is set at 250 × the ...

This year you are planning to raise all your capital by

This year you are planning to raise all your capital by borrowing. Your assistant says that you should evaluate new investments this year using the cost of debt only. Is he/she correct? Why or why not?

What are the three ways in which derivatives can be misused

What are the three ways in which derivatives can be misused? Contrast dollar return and percentage return. Be sure to identify which return is more useful when comparing investments? Compare and contrast options and forw ...

Briefly describe each of the following disbursement

Briefly describe each of the following disbursement products/methods: a. Zero-balance accounts (ZBAs) b. Controlled disbursement c. Positive pay How does a ZBA relate to the firm's target cash balance?

1 if a firms required return were 0 percent would time

1. If a firm's required return were 0 percent, would time value of money matter? As these returns rise above 0 percent, what effect would the increasing return have on future value? Present value? 2. What would happen to ...

Nicollette nbspjoined towson university basketball team

Nicollette  joined Towson University basketball team since summer 2015. On average, she is able to score 30% of the field goals. Assume she tries 15 field goals in a game. (a) Let X be the number of field goals that Mimi ...

Explain why option traders often use spreads instead of

Explain why option traders often use spreads instead of simple long or short options and combined positions of options and stock ? Suppose that an option trader has a call bull spread. The stock price has risen substanti ...

What is diversifiable risk what is the role of

What is diversifiable risk? What is the role of diversification in the capital asset pricing model? If investors are risk averse, which would they prefer: a stock with an expected return of 5% with a beta of 1.2 or a sto ...

1 develop a topic of interest to you and prepare both a

1. Develop a topic of interest to you, and prepare both a structured and an unstructured interview. Collect data from your classmates, and develop a method for coding the findings. 2. Create a sampling frame, and collect ...

A congresswoman introduces a bill to outlaw credit

A Congresswoman introduces a bill to outlaw credit rationing by banks. The bill would require that every applicant be granted a loan, no matter how high the risk that the applicant would not pay back the loan. She defend ...

  • 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