After five years, you have built a strong restaurant business called BurritoGrande. You have six locations and each of them are doing well. It’s time to expand. After thorough analysis you decide to open six new locations. You want them to be almost exactly the same, thereby reducing the design and build costs.

Your existing business generates $12millionin revenue, has cost of goods sold of approximately $8million, and operating expenses of $4.5million. The company’s existing assets are fully depreciated. You believe the new locations will be able to generate $1.8million each in their first year, which will grow by 12% each year thereafter. Gross margins and operating margins are expected to be the same as the existing business.

Each new location will cost $2.3million to design and build and require an additional investment in working capital of $500,000. You plan to open two locations in year one. One in year two, and three and two in year four. You expect to sell the business at the end of year six at a 6x multiple of after tax cash flow.

The business has a tax rate of 36%, now that Biden is going to get elected. The company’s WACC is 6.2%.

Calculate the NPV and IRR of the expansion.

Calculate the value of the combined business using the NPV approach.

The Gardner Theater, a community playhouse, needs to determine the lowest-cost production budget for an upcoming show. Specifically, they have to determine which set pieces to construct and which, if any, set pieces to rent from another local theater at a predetermined fee. However, the organization has only two weeks to fully construct the set before the play goes into technical rehearsals. The theater has two part-time carpenters who work up to 12 hours a week, each at $10 an hour. Additionally, the theater has a part-time scenic artist who can work 15 hours per week to paint the set and props as needed at a rate of $15 per hour. The set design requires 20 flats (walls), two hanging drops with painted scenery, and three large wooden tables (props). The number of hours required for each piece for carpentry and painting is shown below:

Cost Volume Profit Analysis

Sports Company manufactures basketballs. The company has a standard ball that sells for $25. The variable cost are $ 15 per ball. Last year the company sold 30,000 balls. The fixed expenses are $ 210,000.

Required.

1. Prepare a Contribution Income Statement
2. Compute the Contribution Margin per Unit, Variable Expense Ratio and Contribution Margin Ratio
3. Compute the Break Even Point in dollars and units
4. Compute the Margin of Safety
5. Due to a increase in labor rates, the company estimates that variable costs will increase by $3 per ball next year. If this change takes place and the selling price per ball remains constant at $25, what will be the new Contribution margin ratio and Break Even Point in balls.
6. Refer to data in (4) above. If the expected change in variable expense takes place, how many balls will have to be sold next year to earn the net income of $100,000 .

7. Refer to the original data. The company is discussing the construction of a new automated plant to manufacture the balls.. The new plant would slash variable expenses per ball by 40%, but it would cause fixed expenses to double in amount per year. If the new plant is built, what would be the company's new Contribution Margin Ratio and new Break-Even Point.

The Gardner Theater, a community playhouse, needs to determine the lowest-cost production budget for an upcoming show. Specifically, they have to determine which set pieces to construct and which, if any, set pieces to rent from another local theater at a predetermined fee. However, the organization has only two weeks to fully construct the set before the play goes into technical rehearsals. The theater has two part-time carpenters who work up to 12 hours a week, each at $10 an hour. Additionally, the theater has a part-time scenic artist who can work 15 hours per week to paint the set and props as needed at a rate of $15 per hour. The set design requires 20 flats (walls), two hanging drops with painted scenery, and three large wooden tables (props). The number of hours required for each piece for carpentry and painting is shown below:

Details of McCormick Plant Proposal McCormick & Company is considering a project that requires an initial investment of $24 million to build a new plant and purchase equipment. The investment will be depreciated as a modified accelerated cost recovery system (MACRS) seven-year class asset. The new plant will be built on some of the company's land, which has a current, after-tax market value of $4.3 million. The company will produce bulk units at a cost of $130 each and will sell them for $420 each. There are annual fixed costs of $500 thousand. Unit sales are expected to be 150,000 each year for the next six years, at which time the project will be abandoned. At that time, the plant and equipment is expected to be worth $8 million (before tax) and the land is expected to be worth $5.4 million (after tax). To supplement the production process, the company will need to purchase $1 million worth of inventory. That inventory will be depleted during the final year of the project. The company has $100 million of debt outstanding with a yield to maturity of 8 percent, and has $150 million of equity outstanding with a beta of 0.9. The expected market return is 13 percent, and the risk-free rate is 5 percent. The company's marginal tax rate is 40 percent. Should the project be accepted?

8. Find the NPV using the after-tax WACC as the discount rate.

McCormick & Company is considering a project that requires an initial investment of $24 million to build a new plant and purchase equipment. The investment will be depreciated as a modified accelerated cost recovery system (MACRS) seven-year class asset. The new plant will be built on some of the company's land, which has a current, after-tax market value of $4.3 million.

The company will produce bulk units at a cost of $130 each and will sell them for $420 each. There are annual fixed costs of $500,000. Unit sales are expected to be $150,000 each year for the next six years, at which time the project will be abandoned. At that time, the plant and equipment is expected to be worth $8 million (before tax) and the land is expected to be worth $5.4 million (after tax).

To supplement the production process, the company will need to purchase $1 million worth of inventory. That inventory will be depleted during the final year of the project. The company has $100 million of debt outstanding with a yield to maturity of 8 percent, and has $150 million of equity outstanding with a beta of 0.9. The expected market return is 13 percent, and the risk-free rate is 5 percent. The company's marginal tax rate is 40 percent.

What will be the value of the plant and equipment for tax purposes in year six? Will it be sold for a gain or a loss, and what will the tax effect be?

McCormick & Company is considering a project that requires an initial investment of $24 million to build a new plant and purchase equipment. The investment will be depreciated as a modified accelerated cost recovery system (MACRS) seven-year class asset. The new plant will be built on some of the company's land, which has a current, after-tax market value of $4.3 million. The company will produce bulk units at a cost of $130 each and will sell them for $420 each. There are annual fixed costs of $500,000. Unit sales are expected to be $150,000 each year for the next six years, at which time the project will be abandoned. At that time, the plant and equipment is expected to be worth $8 million (before tax) and the land is expected to be worth $5.4 million (after tax). To supplement the production process, the company will need to purchase $1 million worth of inventory. That inventory will be depleted during the final year of the project. The company has $100 million of debt outstanding with a yield to maturity of 8 percent, and has $150 million of equity outstanding with a beta of 0.9. The expected market return is 13 percent, and the risk-free rate is 5 percent. The company's marginal tax rate is 40 percent. Should the project be accepted? question: Find the NPV using the after-tax WACC as the discount rate

McCormick & Company is considering a project that requires an initial investment of $24 million to build a new plant and purchase equipment. The investment will be depreciated as a modified accelerated cost recovery system (MACRS) seven-year class asset. The new plant will be built on some of the company's land, which has a current, after-tax market value of $4.3 million. The company will produce bulk units at a cost of $130 each and will sell them for $420 each. There are annual fixed costs of $500,000. Unit sales are expected to be $150,000 each year for the next six years, at which time the project will be abandoned. At that time, the plant and equipment is expected to be worth $8 million (before tax) and the land is expected to be worth $5.4 million (after tax). To supplement the production process, the company will need to purchase $1 million worth of inventory. That inventory will be depleted during the final year of the project. The company has $100 million of debt outstanding with a yield to maturity of 8 percent, and has $150 million of equity outstanding with a beta of 0.9. The expected market return is 13 percent, and the risk-free rate is 5 percent. The company's marginal tax rate is 40 percent. question: 6. Create an after-tax cash flow timeline. please show formula used

Kingston Kiteboards Incorporated (KKI) has been experiencing very strong demand for its products as kite-boarding continues to take away market share from windsurfing. The company is considering a new facility to manufacture an improved line of kites and another facility to produce a new line of boards. The company estimates that the new kite facility will cost $1,250,000 to construct in Year 0 with a salvage value of $150,000 in Year 12. The board manufacturing facility will cost $1,500,000 in Year 0 with a salvage value of $200,000 in Year 12. Combined annual revenue for the new kites and boards is expected to be $800,000 with annual combined operating costs of $300,000 each year. Management has identified a piece of land where both facilities could be built that could be purchased for $500,000 in Year 0. The management team estimates that the land may be sold for the same value of $500,000 at the end of Year 12. The company uses a discount rate of 10% and a tax rate of only 15%. Assume that the CCA rate of 20% can be applied to the land and the manufacturing facilities.

Use the present value tax shield approach to determine the net present value (NPV) of combined project involving both new manufacturing facilities. Should KKI proceed with the investment using these assumptions?

Bank of America's Consumer Spending Survey collected data on annual credit card charges in seven different categories of expenditures: transportation, groceries, dining out, household expenses, home furnishings, apparel, and entertainment. Using data from a sample of 42 credit card accounts, assume that each account was used to identify the annual credit card charges for groceries (population 1) and the annual credit card charges for dining out (population 2). Using the difference data, the sample mean difference was d=$850, and the sample standard deviation was s = $1123.

a. Formulate the null and alternative hypotheses to test for no difference between the population mean credit card charges for groceries and the population mean credit card charges for dining out.

b. Use .05 level of significance. Can you conclude that the population means differ?

What is the p-value? (to 6 decimals)

c. Which category, groceries or dining out, has a higher population mean annual credit card charge? a. Groceries b. dining out

What is the point estimate of the difference between the population means? Round to the nearest whole number. What is the 95% confidence interval estimate of the difference between the population means? Round to the nearest whole number.