Ask Question, Ask an Expert

+1-415-315-9853

info@mywordsolution.com

Ask Basic Finance Expert

Outline

You are to make a report which addresses the two projects detailed below. The report is to be properly formatted (where necessary this includes: rounding, headings, table appearance, appropriate table and the graph headings, justifications, consistency in formatting, cash flow diagrams, and so forth.) with each problem addressed in a separate section. Consist of supporting computations.

Project 1

PolyCorp is considering an investment in the new plant of $3 million.  The project will be financed with a loan of $2,000,000 that will be repaid over the next five years in equal yearly end of year instalments at a rate if 8.5 percent pa.  Suppose straight-line depreciation over a five-year life, and no taxes. The projects cash flows before loan repayments and interest are shown in table below. Cost of capital is 14% pa. A salvage value of $200,000 is included in cash flow for year five. Polycorp paid $200,000 for a feasibility study on project about a year ago.

Year             Year One    Year Two    Year Three    Year Four    Year Five
Cash Inflow    950,000    900,000      850,000        850,000    900,000

You are required to find out:

(a) The amount of loan repayments

(b) Repayment schedule screening annual interest component in the repayments

(c) NPV of project

(d) The IRR of project

(e) The annual equal (AE or EAV)

(f) The payback in the years (to one decimal place)

(g) The accounting rate of return (gross and net)

(h) PI (present value index or profitability index)

Is the project acceptable? Why or why not? Your answer must consist of an explanation of your treatment of salvage value, the cost of feasibility study, and the interest and repayments on the loan.

Project 2

Polycorp Limited Steel Division is considering a proposal to buy a new machine to manufacture a new product for a potential three year contract.  The new machine will cost $1 million.  The machine has an estimated life of three years for accounting and taxation reasons. The contract will not continue beyond three years and the equipment estimated salvage value at the ending of three years is $100,000. The tax rate is 30 percent and is payable in year in which profit is earned.  An investment payment of twenty percent is accessible. The after tax cost of capital is 13.5% pa.  Ignore inflation.

Addition net working capital of $60,000 is required immediately to support project.  Suppose that this amount is recovered at the end of the three year life of project.

The new product will be charged $52,000 of allocated head office administration costs each year even though head office will not really acquire any extra costs (or cash flows) to manage the project.  This is in accordance with the firm’s policy of allocating all corporate overhead costs to divisions.

Extra marketing and administration cash outflows of $40,000 per year will be acquired by the Steel Division.
An amount of $30,000 has been spent on a pilot study and market research for new product.  The projections provided here are based on this work.

Projected sales for the new product are 30,000 units at $115 per unit per year.    Cash operating expenses are estimated to be 80 percent of sales (excludes marketing and administration, and head office items).

Except for initial outlays, assume cash flows occur at the end of each year (unless otherwise stated). Assume prime cost or straight line depreciation for tax purposes.

Required

(a) Create a table showing your computations of net cash flow after tax. (Similar to that demonstrated in the notes and in class)

(b) Compute the NPV.  Is the project acceptable? Why or why not?

(c) Elucidate your computation of relevant net cash flows after tax, justifying your selection of cash flows. Be sure to state clearly any assumptions made.

Basic Finance, Finance

  • Category:- Basic Finance
  • Reference No.:- M91093
  • Price:- $35

Guranteed 24 Hours Delivery, In Price:- $35

Have any Question? 


Related Questions in Basic Finance

1 what problems did the decline in housing prices that

1. What problems did the decline in housing prices that began in 2006 cause for the financial system? 2. What actions did the Federal Reserve and Treasury take in dealing with the financial crisis? What is the moral haza ...

Wilsons antiques is considering a project that has an

Wilson's Antiques is considering a project that has an initial cost today of $10,000. The project has a two-year life with cash inflows of $6,500 a year. Should Wilson's decide to wait one year to commence this project, ...

In a study participants were asked to plunge a hand into

In a study, participants were asked to plunge a hand into icy water and keep it there as long as the pain would allow. In one condition, the participants repeated their favorite curse words while their hands were in the ...

Rosa inc has arranged a one-year 2 million credit line with

Rosa Inc. has arranged a one-year, $2 million credit line with its lead bank. The bank set the interest rate at the prime rate plus a spread of 1.50 percent. The prime rate is expected to remain stable at 5.25 percent du ...

Your customer has a yoga studio when she started the

Your customer has a Yoga Studio. When she started the business, she got a loan for $5,000 to equip the studio. Interest is $75 per month and depreciation on the furnishing is $50 per month. She pays $1,000 per month in r ...

1 what is multiple regression and how is it used in

1. What is multiple regression, and how is it used in behavioral science research? 2. What is a spurious relationship? 3. What is the difference between a common-causal variable, an extraneous variable, and a mediating v ...

1 how many conditions are there in the simplest possible

1. How many conditions are there in the simplest possible experiment? 2. Describe how participants are assigned to conditions in randomized groups, matched-subjects, and repeated measures experimental designs. 3. What ar ...

Explain how the repurchase agreement plays a role in the

Explain how the repurchase agreement plays a role in the pricing of futures contracts. What is the implied repo rate? Identify and explain some factors that make the execution of stock index futures arbitrage difficult i ...

1 when are tests of simple main effects used and what do

1. When are tests of simple main effects used, and what do researchers learn from them? 2. Who developed the rationale and computations for the analysis of variance? 3. Under what two circumstances would you use a multiv ...

1 discuss the differences between foreign trade and foreign

1. Discuss the differences between foreign trade and foreign direct investment. 2. Identify some of the competitive threats of RDEs. 3. Discuss the ethics of outsourcing to other countries where the wages are less than o ...

  • 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