Question
In: Finance
Could someone please answer this question? I need it to be solved in 3 hours. Thank...
Could someone please answer this question? I need it to be solved in 3 hours. Thank you so much for your help! I am really grateful!
FUN Corp. is planning to add a new doll “Lisa” to their production line. Instead of purchasing a third-party research report, the marketing department of FUN Corp. conducted their own analysis which saved at least $20,000 for the firm. The assumptions about the expected revenues, expenses and capital investments are presented as the followings. (All numbers are in thousands of US dollars).
Assumptions:
- Please assume that the analysis is taking place at the end of Year 0. FUN Corp can undertake this project for 4 years OR for 5 years.
- Expected revenues for the next 5 year are:
|
Year 1 |
Year 2 |
Year 3 |
Year 4 |
Year 5 (if applicable) |
|
|
Revenues |
10,000 |
20,000 |
22,000 |
15,000 |
8,000 |
- Cost of goods sold is expected to be 20% of that year’s revenue.
- Capital investment of machinery is $40,000 and will be paid in 2 equal installments ($20,000 each) at the beginning of Year 1 and Year 2.
- The full amount of machinery will be depreciated to zero using a straight-line method over 5 years. FUN Corp. have the option to stop the project and sell the machinery for $10,000 at the end of Year 4. Otherwise, the machinery will be worth nothing ($0) on the market by the end of Year 5.
- Net working capital equal to 10% of the following year’s projected sales. NWC will be fully recovered by the end of the project (whenever it ends).
- If the firm undertakes the doll “Lisa”, the free cash flow from existing doll “Amy” is projected to increase by $1,000 in Year 1, $3,000 in Year 2, $3,500 in Year 3 due to better brand recognition.
- Corporate income tax rate is 30%. The cost of capital for this project is estimated to be 20%.
Please answer the following questions:
- What is the NPV of the project if the firm undertakes it for 5 years? What if for 4 years?
- What is the payback period of the project if the firm undertakes it for 5 years? What if for 4 years?
How long would you recommend the firm to undertake this project for? Why?
Solutions
Expert Solution
(a)
| Calculation of NPV (Duration 5-Years) | |||
| Year | Cash Flow | DF @ 20% | PV |
| 0 | $ (20,000) | 1.0000 | $ (20,000) |
| 1 | $ (11,300) | 0.8333 | $ (9,416) |
| 2 | $ 15,700 | 0.6944 | $ 10,902 |
| 3 | $ 17,170 | 0.5787 | $ 9,936 |
| 4 | $ 10,800 | 0.4823 | $ 5,209 |
| 5 | $ 6,880 | 0.4019 | $ 2,765 |
| Net Present Value | $ (604) |
Working Note :
| Calculation of cash flow (Duration 5-Years) | ||||||
| Year | 0 | 1 | 2 | 3 | 4 | 5 |
| Revenue | $ - | $ 10,000 | $ 20,000 | $ 22,000 | $ 15,000 | $ 8,000 |
| Cost of Goods (20%) | $ - | $ (2,000) | $ (4,000) | $ (4,400) | $ (3,000) | $ (1,600) |
| Increase CF from Amy | $ - | $ 1,000 | $ 3,000 | $ 3,500 | $ - | $ - |
| Net Revenue | $ - | $ 9,000 | $ 19,000 | $ 21,100 | $ 12,000 | $ 6,400 |
| Less : Depreciation | $ - | $ (8,000) | $ (8,000) | $ (8,000) | $ (8,000) | $ (8,000) |
| EBIT | $ - | $ 1,000 | $ 11,000 | $ 13,100 | $ 4,000 | $ (1,600) |
| Less : Tax @ 30% | $ - | $ (300) | $ (3,300) | $ (3,930) | $ (1,200) | $ 480 |
| EBT | $ - | $ 700 | $ 7,700 | $ 9,170 | $ 2,800 | $ (1,120) |
| Add: Depreciation | $ - | $ 8,000 | $ 8,000 | $ 8,000 | $ 8,000 | $ 8,000 |
| Cash Flow after Tax | $ - | $ 8,700 | $ 15,700 | $ 17,170 | $ 10,800 | $ 6,880 |
| Less : Capital Payment | $ (20,000) | $ (20,000) | $ - | $ - | $ - | $ - |
| Net Cash Flow | $ (20,000) | $ (11,300) | $ 15,700 | $ 17,170 | $ 10,800 | $ 6,880 |
| Calculation of NPV (Duration 4-Years) | |||
| Year | Cash Flow | DF @ 20% | PV |
| 0 | $ (20,000) | 1.0000 | $ (20,000) |
| 1 | $ (11,300) | 0.8333 | $ (9,416) |
| 2 | $ 15,700 | 0.6944 | $ 10,902 |
| 3 | $ 17,170 | 0.5787 | $ 9,936 |
| 4 | $ 20,200 | 0.4823 | $ 9,742 |
| Net Present Value | $ 1,165 |
Working Note :
| Calculation of cash flow (Duration 4-Years) | |||||
| Year | 0 | 1 | 2 | 3 | 4 |
| Revenue | $ - | $ 10,000 | $ 20,000 | $ 22,000 | $ 15,000 |
| Cost of Goods (20%) | $ - | $ (2,000) | $ (4,000) | $ (4,400) | $ (3,000) |
| Increase CF from Amy | $ - | $ 1,000 | $ 3,000 | $ 3,500 | $ - |
| Net Revenue | $ - | $ 9,000 | $ 19,000 | $ 21,100 | $ 12,000 |
| Less : Depreciation | $ - | $ (8,000) | $ (8,000) | $ (8,000) | $ (8,000) |
| EBIT | $ - | $ 1,000 | $ 11,000 | $ 13,100 | $ 4,000 |
| Less : Tax @ 30% | $ - | $ (300) | $ (3,300) | $ (3,930) | $ (1,200) |
| EBT | $ - | $ 700 | $ 7,700 | $ 9,170 | $ 2,800 |
| Add: Depreciation | $ - | $ 8,000 | $ 8,000 | $ 8,000 | $ 8,000 |
| Cash Flow after Tax | $ - | $ 8,700 | $ 15,700 | $ 17,170 | $ 10,800 |
| Less : Capital Payment | $ (20,000) | $ (20,000) | $ - | $ - | $ - |
| Add: Salvage After Tax | $ - |
 jeff jeffy answered 1 year agoRelated SolutionsI do not understand this question could someone please answer and give meaning to this question....I do not understand this question could someone please answer
and give meaning to this question. MHC6305 Finanical
Management.
Compare and contrast cash accounting methodology and accrual
accounting methodology in order to illustrate how each best works
for different types of companies.
I JUST NEED ANSWER FOR QTN C AND QUESTION THREE (3) PLEASE. QUESTION 3 SHOULD BE...I JUST NEED ANSWER FOR QTN C AND QUESTION THREE (3) PLEASE.
QUESTION 3 SHOULD BE 3 POINT DISCUSSION WITH REMCOMMENDATIONS
CASE 4–20 Ethics and the Manager, Understanding the
Impact of Percentage Completion on Profit—Weighted-Average
Method [Course Objective B] Gary Stevens and Mary James
are production managers in the Consumer Electronics Division of
General Electronics Company, which has several dozen plants
scattered in locations throughout the world. Mary manages the plant
located in Des Moines, Iowa, while Gary manages the...
please answer it in 3 hours, it's due in 3 hours, doesn't need any solution if...please answer it in 3 hours, it's due in 3 hours, doesn't need
any solution if time pass.
also, please make sure your writing is readble, these question
could be found on chegg, but those guys had VERY UGLY AND UNREADBLE
wrritten, i couldn't read those solution. that's why I ask the
question agian. I don't mind you use those solution that already
have on chegg, but MAKE SURE YOUR WRITING IS GOOD!!! please!
thank you very much.
here are...
I have this question in my nursing class I just need someone to answer it for...I have this question in my nursing class I just need someone to
answer it for me
Reflect on an occasion where you experienced ineffective
leadership (doesn't have to be in the hospital/healthcare). What
behaviors did they display? What factors may have influenced their
leadership style?
Please I need today answer for This question and it is very important and I need...Please I need today answer for This question and it is very
important and I need solution for this issue with all the details ,
and help me with all the details.Please write your answer to me by
typing, not by handwriting, so that I can read and understand your
answer clearly.BR/Hassan
Question : Unemployment and economic policy . Please be brief
and to the point. .
Your task is to explain how employment and/or unemployment is
determined according to...
Please I need today answer for This question and it is very important and I need...Please I need today answer for This question and it is very
important and I need solution for this issue with all the details ,
and help me with all the details.Please write your answer to me by
typing, not by handwriting, so that I can read and understand your
answer clearly.BR/Hassan
Externalities :
a) Define a negative production externality.
b) Why do markets not always manage to solve the problem of
externalities on their own?
c) Under which conditions...
Please I need today answer for This question and it is very important and I need...Please I need today answer for This question and it is very
important and I need solution for this issue with all the details ,
and help me with all the details.Please write your answer to me by
typing, not by handwriting, so that I can read and understand your
answer clearly.BR/Hassan
Q) Two firms produce a good which leads to pollution :
Assume that the marginal cost for cleaning up in one firm is
given by ??1 = 40...
Please I need today answer for This question and it is very important and I need...Please I need today answer for This question and it is very
important and I need solution for this issue with all the details ,
and help me with all the details.Please write your answer to me by
typning not by hand writing, so that I can read and
understand your answer clearly.thanks in advance/Ha
Question
This question will ask you to use the Heckscher-Ohlin model to
analyze the effect of trade
liberalization between two countries. Assume that there are two...
Please I need answer for This question and it is very important and I need solution...Please I need answer for This question and it is very important
and I need solution for this issue with all the details just nu ,
and help me with all the details, so that I can read and understand
your answer clearly.thanks in advance/Ha
2. Answer whether the following examples of Foreign Direct
Investment (FDI) describe horizontal or vertical FDI. Explain your
answers. a) Volvo builds a car factory in Austin, Texas, which is
similar to Volvo’s factory in...
Please I need today answer for This question and it is very important and I need...Please I need today answer for This question and it is very
important and I need solution for this issue with all the details ,
and help me with all the details.Please write your answer to me by
typning not by hand writing, so that I can read and
understand your answer clearly.thanks in advance/Ha
1. Explain the following concepts in 50 words maximum for each
concept. .
a) Vertical foreign direct investment
b) Internal economies of scale
c) Comparative advantage...
ADVERTISEMENT
ADVERTISEMENT
Latest Questions
ADVERTISEMENT
|