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

Potters violin co has just issued nonconvertible preferred

Potter's Violin Co. has just issued nonconvertible preferred stock with a par value of $100 and an annual dividend rate of 18.66 percent. The preferred stock is currently selling for $119.42 per share. which rate of retu ...

Treasury bills versus treasury notes and changes in

Treasury Bills versus Treasury Notes and Changes in Interest Rates The daily market transactions for treasury instruments are in the billions. The current average daily volume of "Treasuries" is approximately $150 billio ...

It is essential that you have a solid grounding in the

It is essential that you have a solid grounding in the academic theories of investing. In your final assignment, compare and contrast the academic theories of investing covered in your required readings with the philosop ...

1 what is a leveraged buyout what is mezzanine financing2

1. What is a leveraged buyout? What is mezzanine financing? 2. What is a tax-free merger? 3. Explain the difference between the economic and financial definitions of business failure. 4. Explain the differences among the ...

1 list four important drivers of housing demand and price

1. List four important drivers of housing demand and price appreciation. 2. What are public goods? How may they be reflected in house prices? 3. When considering an investment in "distressed'' properties, what are the tw ...

1 what is the difference between the short position and the

1. What is the difference between the short position and the long position in a futures market? 2. Give an example of how someone might hedge using a commodity futures and give an example of how someone might hedge using ...

1 why is motor carrier freight transportation the most

1. Why is motor carrier freight transportation the most preferred method of product shipment? 2. What is the economic justification for the recent rapid growth of premium package services? 3. Why is it important for a lo ...

A firm has a capital structure that uses 45 percent equity

A firm has a capital structure that uses 45 percent equity, 20 percent preferred shares, and 35 percent debt. The preferred shares have a current yield of 5.5 percent. The debt has a coupon rate of 10 percent and a curre ...

1 what is meant by purchasing authority give examples of

1. What is meant by purchasing authority? Give examples of each type of purchasing authority. 2. Discuss the liability issues associated with purchasing agents' actions. Minimum 3 references.

Once a project is accepted country risk analysis for the

Once a project is accepted, country risk analysis for the foreign country involved is no longer necessary, assuming that no other proposed projects are being evaluated for that country. Do you agree with this statement? ...

  • 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