Question
In: Finance
You own a small manufacturing plant that currently generates revenues of $2 million per year. Next...
You own a small manufacturing plant that currently generates revenues of $2 million per year. Next year, based upon a decision on a long-term government contract, your revenues will either increase by 20% or decrease by 25%, with equal probability, and stay at that level as long as you operate the plant. Other costs run $1.6 million dollars per year. You can sell the plant at any time to a large conglomerate for $5 million and your cost of capital is 10%.
1. If you are awarded the government contract and your sales increase by 20%, then the value of your plant is -------$ million. (round to the nearest million)
2. If you are not awarded the government contract and your sales decrease by 25%, then the value of your plant is ------$ million. (round to the nearest million)
3. Given the embedded option to sell the plant, what is the value of your plant? The value is -------$ million. (round to one decimal)
4. Assume that you are not able to sell the plant, but you are able to shut down the plant at no cost at any time. Given the embedded option to abandon production the value of your plant is --------$ million. (round to the nearest million)
5. Assume that you are not able to sell the plant, but you are able to shut down the plant at no cost at any time. The value of the option to abandon production is -------$ million. (round to the nearest million)
6. Assume that it will cost you $1 million to shut down the plant, but you are able to sell the plant for $5 at any time. What is the value of the option to sell the plant? The value is------ $ million. (round to the nearest million)
Solutions
jeff jeffy answered 1 year agoRelated Solutions
You own a small manufacturing plant that currently generates revenues of $2 million per year. Next...
You own a small manufacturing plant that currently generates
revenues of $2 million per year. Next year, based upon a decision
on a long-term government contract, your revenues will either
increase by 20% or decrease by 25%, with equal probability, and
stay at that level as long as you operate the plant. Other costs
run $1.6 million dollars per year. You can sell the plant at any
time to a large conglomerate for $5 million and your cost of
capital...
Background information for the rest questions: You own a small manufacturing plant that currently generates revenues...
Background information for the rest questions:
You own a small manufacturing plant that currently generates
revenues of $2 million per year. Next year, based upon a decision
on a long-term government contract, your revenues will either
increase by 20% or decrease by 25%, with equal probability, and
stay at that level as long as you operate the plant. Other costs
run $1.6 million dollars per year. You can sell the plant at any
time to a large conglomerate for $5...
Net revenues at an older manufacturing plant will be $2 million this year. The net revenue...
Net revenues at an older manufacturing plant will be $2 million
this year. The net revenue will decrease by 15% per year for 5
years, when the assembly plant will be closed (at the end of year
6). If the firm's interest rate is 10%, calculate the PW of the
revenue stream. Use excel functions and a table.
You own a wholesale plumbing supply store. The store currently generates revenues of $ 1.00 $1.00...
You own a wholesale plumbing supply store. The store currently
generates revenues of $ 1.00 $1.00 million per year. Next year,
revenues will either decrease by 10.0 % 10.0% or increase by 5.0 %
5.0%, with equal probability, and then stay at that level as long
as you operate the store. You own the store outright. Other costs
run $ 900 comma 000 $900,000 per year. There are no costs to
shutting down; in that case you can always sell...
You run a perpetual encabulator machine, which generates revenues averaging $25 million per year. Raw material...
You run a perpetual encabulator machine, which generates
revenues averaging $25 million per year. Raw material costs are 60%
of revenues. These costs are variable−they are always proportional
to revenues. There are no other operating costs. The cost of
capital is 11%. Your firm’s long-term borrowing rate is 8%.
Now you are approached by Studebaker Capital Corp., which
proposes a fixed-price contract to supply raw materials at $15
million per year for 10 years.
a. What happens to the operating...
PaperPro had previously acquired PaperExpo, which independently generates $800 million per year in revenues, with no...
PaperPro had previously acquired PaperExpo, which independently
generates $800 million per year in revenues, with no material
growth. The consolidated revenues for PaperPro (post-acquisition)
are $1.5 billion in year 1, $1.8 billion in year 2 (the year of the
acquisition), and $2.5 billion in year 3. If PaperPro closed the
acquisition of PaperExpo on October 1 of year 2, what is the
apples-to-apples organic growth for PaperPro in year 2 and year 3?
How does this differ from reported revenue...
A company generates perpetual revenues averaging $20 million per year. On average, raw materials are 60%...
A company generates perpetual revenues averaging $20 million per
year. On average, raw materials are 60% of revenues. There are no
other operating costs. (Ignore taxes.) A vendor offers to supply
all raw materials for a five-year fixed price contract of $12
million per year. Subsequently, your company will revert to
variable prices for raw materials. The company cost of capital is
10% and the cost of debt is 6%
a. Calculate the value of the company with and without...
Your company operates a steel plant. On average, revenues from the plant are $30 million per...
Your company operates a steel plant. On average, revenues from
the plant are $30 million per year. All of the plants costs are
variable costs and are consistently 80% of revenues, including
energy costs associated with powering the plant, which represent
one quarter of the plant’s costs, or an average of $6 million per
year. Suppose the plant has an asset beta of 1.25, the risk-free
rate is 4%, and the market risk premium is 5%. The tax rate is...
ZeroLeverage Co is a manufacturing firm. The company generates an EBIT of $250,000 per year and...
ZeroLeverage Co is a manufacturing firm. The company generates
an EBIT of $250,000 per year and forever. ZeroLeverage Co will
always distribute its earnings as dividends to its shareholders.
ZeroLeverage Co’s current capital structure includes 100% equity.
There are 100,000 shares of common stocks outstanding. ZeroLeverage
Co’ project has a market beta 1.5. The risk-free asset is yielding
5% per year, and the market risk premium is 5% per year.
Recently, the CEO of ZeroLeverage Co, Mr. Peter Kyle, attended...
An existing turning operation in an small parts manufacturing plant is currently generating 25% scrap. The...
An existing turning operation in an small parts manufacturing
plant is currently generating 25% scrap. The value of the scrap
including material, labor and overhead costs is $20.00/unit. The
current rate of process is 2000 units / month of both good an bad
product. The existing equipment was purchased 5 years ago for
$500,000. Current operating costs are $20,000 per year. The
equipment's market value currently is $150,000. It has 4 more years
of life remaining.
A quality improvement team...
ADVERTISEMENT
ADVERTISEMENT
Latest Questions
- Please answer these questions Data Processing and Analysis using python. Thank you In statistics, an outlier...
- Write a function file that accepts each of the four vectors as inputs. The function file...
- Kant says that to act morally is to act out of duty. How does this differ...
- Suppose you are trying to determine the capacity (in gallons) of the gas tank needed on...
- List the arithmetic operators used in BASIC and state their priorities of execution in a statement....
- Describe the espoused values of a company you have worked for (or been exposed to -...
- Can you explain to me the differnces in how we paid for the health care (access...
ADVERTISEMENT