Submit a written paper which is 3-4 pages in length

Please describe the circumstances of the following case study and recommend a course of action. Explain your approach to the problem, perform relevant calculations and analysis, and formulate a recommendation. Ensure your work and recommendation are thoroughly supported.

Case Study:

A manufacturing company is evaluating two options for new equipment to introduce a new product to its suite of goods. The details for each option are provided below:

Option 1                                                                                                       

• $65,000 for equipment with useful life of 7 years and no salvage value.                                                                            
• Maintenance costs are expected to be $2,700 per year and increase by 3% in Year 6 and remain at that rate.                                       
• Materials in Year 1 are estimated to be $15,000 but remain constant at $10,000 per year for the remaining years.                              
• Labor is estimated to start at $70,000 in Year 1, increasing by 3% each year after.          

Revenues are estimated to be:

Option 2

• $85,000 for equipment with useful life of 7 years and a $13,000 salvage value
• Maintenance costs are expected to be $3,500 per year and increase by 3% in Year 6 and remain at that rate.
• Materials in Year 1 are estimated to be $20,000 but remain constant at $15,000 per year for the remaining years.
• Labor is estimated to start at $60,000 in Year 1, increasing by 3% each year after.

Revenues are estimated to be:

The company’s required rate of return and cost of capital is 8%.

Management has turned to its finance and accounting department to perform analyses and make a recommendation on which option to choose. They have requested that the three main capital budgeting calculations be done: NPV, IRR, and Payback Period for each option.

For this assignment, compute all required amounts and explain how the computations were performed. Evaluate the results for each option and explain what the results mean. Based on your analysis, recommend which option the company should pursue.

Note:

Please do not copy the answers already here for me. I saw it before posting.

Please do not plagiarise

Please answer all parts.

Superior papers will:

• Perform all calculations correctly.
• Articulate how the calculations were performed, including from where values used in the calculations were obtained.
• Evaluate the results computed and explain the meaning of the results, including why certain measurements are more accurate than others.
• Recommend which option to pursue, supported by well-thought-out rationale, and considering any other factors that could impact the recommendation.

Suppose you have access to the following bond data.

One year zero coupon bond, priced at 98, face value 100. Two year coupon bond, priced at 97. Annual coupons are $2, delivered at end of year. Three year coupon bond, priced at 96. Annual coupons are $3, delivered at the end of the year.

1. What is the coupon rate on the two-year coupon bond?

2. What is the current yield on the three-year coupon bond?

3. What is the yield-to-maturity of the three-year coupon bond?

4. Extract one year, two year, and three year spot rates from the bond data.

5. Using the spot rates, calculate the present value of $35 received in one year and $35 received in two years.

6. Using the spot rates, calculate the rate I should be able to lock in for a one year loan starting one year from now. Suppose now that you are a life insurance company projecting to pay benefits of $40 per year for the next 10 years to your policyholders. You are operating in an economy where the term structure of interest rates is completely flat at 4%, so that all spot rates are 4%.

7. Calculate the present value of your benefit obligations.

8. Calculate the duration of your benefit obligations.

9. Given your calculation above, if you were choosing a single type of bond from 1-year, 2-year, 3-year, 4-year, 5-year, 6-year, 7-year, 8-year, 9-year, and 10-year zero coupon bonds, which would serve you best from the perspective of asset-liability matching? In other words, if interest rates were to change, which bond’s price would move most closely with the present value of your obligations?

10. Calculate the percentage change in the value of your obligations if the interest rate were to drop from 4.0% to 3.9%.

11. Calculate the percentage change in the value of the bond you identified in (9) if the interest rate were to drop from 4.0% to 3.9%.

12. Calculate the percentage change in the value of a 1-year zero coupon bond if the interest rate were to drop from 4.0% to 3.9%.

13. (EXTRA CREDIT) If you were allowed to invest in more than one type of bond, could you provide a better match to your benefit obligations than you found in (9)? Propose a mix of bonds that would provide a better match, and verify that the percentage change in the value of the mix would more closely match the percentage change in obligation value in the interest rate scenario used in (10) through (12).

Find the future value of the following cash flow stream at a rate of 5%: Year 0: $0, Year 1: $400, Year 2 $300, Year 3 $250.

Using Excel. What is the present value of the following series of cash payments: $8,000 per year for four consecutive years starting one year from today, followed by annual cash payments that increase by 2% per year in perpetuity (i.e. cash payment in year 5 is $8,000*1.02, cash payment in year 6 is $8,000*1.022, etc.)? Assume the appropriate discount rate is 5%/year.

A new asset is available for $239,000. O&M costs are $24,000 each year for the first five years, $37,680 in year six, $57,700 in year seven, and $88,300 in year eight. Salvage values are estimated to be $198,000 after one year and will decrease at the rate of 17% per year thereafter. At a MARR of 12%, determine the economic service life of the asset. Enter your answer as an integer from 1 to 8.

A new asset is available for $227,000. O&M costs are $34,000 each year for the first five years, $51,000 in year six, $79,100 in year seven, and $121,800 in year eight. Salvage values are estimated to be $204,000 after one year and will decrease at the rate of 50% per year thereafter. At a MARR of 18%, determine the economic service life of the asset. Enter your answer as an integer from 1 to 8

Assume that 25 years ago your dad invested $380,000, plus $31,000 in years 2 through 5, and $46,000 per year from year 6 on. Determine the annual retirement amount that he can withdraw forever starting next year (year 26), if the $46,000 annuity stopped at year 25. The interest rate being 14% per year.

The annual retirement amount is determined to be $_.

Calculate the mean, standard deviation and co-efficient of variation from the following loss history of a large manufacturing companies workers compensation loss history
a.   Year 1 - $100,000
b.   Year 2 - $125,000
c.   Year 3 - $50,000
d.   Year 4 - $1,250,000 (one large auto accident involving a sales person for $1,150,000)
e.   Year 5 - $85,000
f.   Year 6 - $140,000