Question
In: Finance
MLM Corporation, has provided you the following business operations data:
MLM Corporation, has provided you the following business operations data:
|
Items |
Value |
|
Equipment cost |
$8,750 |
|
Salvage value, equipment, Year 4 |
$750 |
|
Opportunity cost |
$0 |
|
Externalities (cannibalization) |
$0 |
|
Units sold, Year 1 |
12,000 |
|
Annual change in units sold, after Year 1 |
13% |
|
Sales price per unit, Year 1 |
$1.65 |
|
Annual change in sales price, after Year 1 |
3% |
|
Variable cost per unit (VC), Year 1 |
$1.07 |
|
Annual change in VC, after Year 1 |
3% |
|
Nonvariable cost (Non-VC), Year 1 |
$2,120 |
|
Annual change in Non-VC, after Year 1 |
2.5% |
|
Project cost of capital (r) |
12% |
|
Tax rate |
21% |
|
Working capital as % of next year's sales |
15% |
Moreover, they have tabulated cash flows and performance measures as shown below:
|
Years |
0 |
1 |
2 |
3 |
4 |
|
Unit sales |
12,000 |
13,560 |
15,323 |
17,315 |
|
|
Sales price per unit |
$1.65 |
$1.70 |
$1.75 |
$1.80 |
|
|
Variable cost per unit (excl. depr.) |
$1.07 |
$1.10 |
$1.12 |
$1.15 |
|
|
Nonvariable costs (excl. depr.) |
$2,120 |
$2,173 |
$2,227 |
$2,283 |
|
|
Sales revenues = Units × Price/unit |
$19,800 |
$23,045 |
$26,822 |
$31,219 |
|
|
NOWCt = 15%(Revenuest+1) |
$2,970 |
$3,457 |
$4,023 |
$4,683 |
$0 |
|
Basis for depreciation |
$8,750 |
||||
|
Annual depreciation rate (MACRS) |
33.33% |
44.45% |
14.81% |
7.41% |
|
|
Annual depreciation expense |
$2,916 |
$3,889 |
$1,296 |
$648 |
|
|
Remaining undepreciated value |
$5,834 |
$1,944 |
$648 |
$0 |
As a corporate finance advisor, you’re required to perform the following tasks: 1- Provide a cash flow forecast for the next four years.
2- Calculate NPV, IRR, MIRR, Profitability Index (PI), Payback, and Discounted Payback.
Solutions
Expert Solution
| 0 | 1 | 2 | 3 | 4 | ||
| Unit sales | 12000 | 13560 | 15323 | 17315 | ||
| Sales price per unit | $ 1.65 | $ 1.70 | $ 1.75 | $ 1.80 | ||
| Variable cost per unit [excl. depr] | $ 1.07 | $ 1.10 | $ 1.12 | $ 1.15 | ||
| Sales revenues | $ 19,800 | $ 23,045 | $ 26,822 | $ 31,219 | ||
| Variable costs | $ 12,840 | $ 14,916 | $ 17,162 | $ 19,912 | ||
| Non-variable costs [excl. depr] | $ 2,120 | $ 2,173 | $ 2,227 | $ 2,283 | ||
| Depreciation | $ 2,916 | $ 3,889 | $ 1,296 | $ 648 | ||
| NOI | $ 1,924 | $ 2,067 | $ 6,137 | $ 8,375 | ||
| Tax rate at 21% | $ 404 | $ 434 | $ 1,289 | $ 1,759 | ||
| NOPAT | $ 1,520 | $ 1,633 | $ 4,849 | $ 6,617 | ||
| Add: Depreciation | $ 2,916 | $ 3,889 | $ 1,296 | $ 648 | ||
| OCF | $ 4,436 | $ 5,522 | $ 6,144 | $ 7,265 | ||
| Capital expenditure | $ 8,500 | |||||
| Change in NWC | $ 2,970 | $ 487 | $ 567 | $ 660 | $ (4,683) | |
| After tax salvage value of equipment = 750*(1-21%) = | $ 593 | |||||
| FCF | $ (11,470) | $ 3,949 | $ 4,955 | $ 5,485 | $ 12,540 | |
| 1] | NPV: | |||||
| PVIF at 12% | 1 | 0.89286 | 0.79719 | 0.71178 | 0.63552 | |
| PV at 12% | $ (11,470) | $ 3,526 | $ 3,950 | $ 3,904 | $ 7,970 | |
| NPV | $ 7,880 | |||||
| 2] | IRR: | |||||
| IRR is that discount rate for which NPV = 0. It has to be arrived at by trial and error. | ||||||
| Discounting with 35%: | ||||||
| PVIF at 35% | 1 | 0.74074 | 0.54870 | 0.40644 | 0.30107 | |
| PV at 35% | $ (11,470) | $ 2,925 | $ 2,719 | $ 2,229 | $ 3,775 | |
| NPV | $ 179 | |||||
| Discounting with 36%: | ||||||
| PVIF at 36% | 1 | 0.73529 | 0.54066 | 0.39754 | 0.29231 | |
| PV at 36% | $ (11,470) | $ 2,904 | $ 2,679 | $ 2,180 | $ 3,666 | |
| NPV | $ (41) | |||||
| IRR = 35%+1%*179/(179+41) = | 35.81% | |||||
| 3] | MIRR: | |||||
| FVIF at 12% | 1.40493 | 1.25440 | 1.12000 | 1.00000 | ||
| FV at 12% | $ 5,548 | $ 6,216 | $ 6,143 | $ 12,540 | ||
| Sum of FV of FCF | $ 30,448 | |||||
| MIRR = (30448/11470)^(1/4)-1 = | 27.64% | |||||
| 4] | Profitability index: | |||||
| Sum of PV of cash inflows | $ 19,350 | |||||
| Initial investment | $ 11,470 | |||||
| PI = 19350/11470 = | 1.69 | |||||
| 5] | Payback period: | |||||
| Cumulative cash flows | $ (11,470) | $ (7,521) | $ (2,565) | $ 2,920 | $ 15,460 | |
| Payback period = 2+2565/5485 = | 2.47 | Years | ||||
| 6] | Discounted payback period: | |||||
| Cumulative PV of cash flows | $ (11,470) | $ (7,944) | $ (3,993) | $ (89) | $ 7,880 | |
| Discounted payback period = 3+89/7970 = | 3.01 | Years |
jeff jeffy answered 2 years agoRelated Solutions
MLM Corporation, has provided you the following business operations data: Items Value Equipment cost $8,750 Salvage...
MLM Corporation, has provided you the following business
operations data:
Items
Value
Equipment cost
$8,750
Salvage value, equipment, Year 4
$750
Opportunity cost
$0
Externalities (cannibalization)
$0
Units sold, Year 1
12,000
Annual change in units sold, after Year 1
13%
Sales price per unit, Year 1
$1.65
Annual change in sales price, after Year 1
3%
Variable cost per unit (VC), Year 1
$1.07
Annual change in VC, after Year 1
3%
Nonvariable cost (Non-VC), Year 1
$2,120
Annual...
8) Dipaola Corporation has provided the following data concerning last month's operations.
8) Dipaola Corporation has provided the following data concerning last month's operations. Purchases of raw materials $ 26,000 Indirect materials included in manufacturing overhead $ 6,000 Direct labor cost$ 58,000Manufacturing overhead applied to Work in Process$ 87,000Overapplied overhead $ 6,000 BeginningEndingRaw materials inventory $ 12,000 $ 18,000 Work in process inventory $ 46,000 $ 64,000Finished goods inventory $ 31,000 $ 46,000 How much is the direct materials cost for the mouth on the Schedule of Cost of Goods Manufactured? A) $38,000 B) $32,000 C) $14,000 D) $26,000
Primare Corporation has provided the following data concerning last month’s manufacturing operations.
Primare Corporation has provided the following data concerning last month’s manufacturing operations.
Purchases of raw materials
$
32,000
Indirect materials included in manufacturing overhead
$
4,760
Direct labor
$
58,500
Manufacturing overhead applied to work in process
$
87,700
Underapplied overhead
$
4,150
Inventories
Beginning
Ending
Raw materials
$
10,200
$
18,700
Work in process
$
54,600
$
67,800
Finished goods
$
33,500
$
42,600
Required:
1. Prepare a schedule of cost of goods manufactured...
Primare Corporation has provided the following data concerning last month’s manufacturing operations.
Primare Corporation has provided the following data concerning
last month’s manufacturing operations. Required: 1. Prepare a schedule of cost of goods manufactured for the month. 2. Prepare a schedule of cost of goods sold for the month. Assume the underapplied or overapplied overhead is closed to Cost of Goods Sold.
Primare Corporation has provided the following data concerning last month’s manufacturing operations.
Primare Corporation has provided the following data concerning
last month’s manufacturing operations. Required: 1. Prepare a schedule of cost of goods manufactured for the month. 2. Prepare a schedule of cost of goods sold for the month. Assume the underapplied or overapplied overhead is closed to Cost of Goods Sold.
Primare Corporation has provided the following data concerning last month’s manufacturing operations. Purchases of raw...
Primare Corporation has provided
the following data concerning last month’s manufacturing
operations.
Purchases of raw
materials
$
31,000
Indirect materials
included in manufacturing overhead
$
4,660
Direct labor
$
59,100
Manufacturing
overhead applied to work in process
$
88,300
Underapplied
overhead
$
4,110
Inventories
Beginning
Ending
Raw materials
$
10,500
$
19,400
Work in process
$
55,700
$
67,300
Finished goods
$
33,100
$
42,600
Required:
1.
Prepare a schedule of cost of
goods manufactured for the month....
Cienfuegos Corporation has provided the following data concerning last month’s operations. Purchases of raw materials $...
Cienfuegos Corporation
has provided the following data concerning last month’s
operations.
Purchases of raw
materials
$
36,000
Indirect
materials included in manufacturing overhead
$
4,000
Direct labor
cost
$
58,000
Manufacturing
overhead applied to Work in Process
$
90,000
Overapplied
overhead
$
3,000
Beginning
Ending
Raw materials
inventory
$
10,000
$
21,000
Work in process
inventory
$
62,000
$
70,000
Finished goods
inventory
$
36,000
$
40,000
The company closes out
any underapplied or overapplied manufacturing overhead to cost of...
Primare Corporation has provided the following data concerning last month’s manufacturing operations. Purchases of raw materials...
Primare Corporation has provided the following data concerning
last month’s manufacturing operations. Purchases of raw materials $
32,000 Indirect materials used in production $ 4,690 Direct labor $
59,200 Manufacturing overhead applied to work in process $ 87,000
Underapplied overhead $ 4,170 Inventories Beginning Ending Raw
materials $ 10,800 $ 19,800 Work in process $ 55,200 $ 66,800
Finished goods $ 35,000 $ 42,800
Required: 1. Prepare a schedule of cost of goods manufactured
for the month.
2. Prepare a...
Primare Corporation has provided the following data concerning last month’s manufacturing operations. Purchases of raw materials...
Primare Corporation has provided the following data concerning
last month’s manufacturing operations.
Purchases of raw materials
$
31,000
Indirect materials included in manufacturing overhead
$
4,550
Direct labor
$
58,600
Manufacturing overhead applied to work in process
$
88,100
Underapplied overhead
$
4,150
Inventories
Beginning
Ending
Raw materials
$
11,900
$
18,800
Work in process
$
54,600
$
68,100
Finished goods
$
33,300
$
43,000
Required:
1. Prepare a schedule of cost of goods manufactured for the
month.
2. Prepare...
Primare Corporation has provided the following data concerning last month’s manufacturing operations. Purchases of raw materials...
Primare Corporation
has provided the following data concerning last month’s
manufacturing operations.
Purchases of raw
materials
$
31,000
Indirect
materials used in production
$
4,510
Direct
labor
$
58,100
Manufacturing
overhead applied to work in process
$
88,600
Underapplied
overhead
$
4,170
Inventories
Beginning
Ending
Raw
materials
$
10,800
$
19,700
Work in
process
$
54,700
$
65,000
Finished
goods
$
34,700
$
43,500
Required:
1. Prepare a schedule
of cost of goods manufactured for the month.
2. Prepare a...
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