Capital Budgeting: Estimating Cash Flows for an Investment

A company is considering replacement of manufacturing equipment with computer controlled equipment, at a cost of $500,000, replacing equipment with a scrap value of $50,000. This will reduce defect costs by $150,000 a year. At the end of 7 years, the equipment will be replaced and will have a scrap value of $100,000. The interest charges for financing the purchase will be $25,000 a year. The new system will be housed in a building that is currently unused, with an overhead value of $10,000 a year. Utility costs will be unchanged. Machine operators will require training of $1000 each for 4 workers. These workers are scheduled for a raise of $3000 each. Because the new equipment technology is well-established for its intended use, the risk premium for the project is considered to be 2 percentage points less than the company’s WACC of 8%.                 

1A. List the investment facts for the project:

NOTE: List all of the financial details associated with the project and designate which should be included (and which ignored) in calculating the project’s cash flows and its cost of capital.

Life of the project:_________

Interest rate for the project:             _______ (cost of capital to the firm adjusted for project risk)

PVIF for the project:           _______

PVIFA for the project:        _______

Initial investment: (include all cash flows - positive and negative - that occur at the beginning of the project)

Future cash flows: (negative and positive)

Lump sum: (one time)

Annuity: (repeated annually)

Costs that you will ignore: (sunk cost or otherwise)

1B. Using the relevant net cash flows and cost of capital from A above, calculate the NPV for the project. (use the NPV formula and the PV tables)

It says the risk premium for the project is considered to be 2 percentage points less than the comapny's WACC of 8%

So the risk premium would be 6%

This is how the question is on our test! What more do you need!?!?!? Can you not let someone else answer since you are clueless?!?!?!

1) Use an Excel spreadsheet to evaluate the ABCD Company proposal.

2) Conduct a sensitivity analysis that focuses on the cost of capital. For a best case scenario, decrease the cost of capital by three percentage points. For a worst case scenario, increase the cost of capital by three percentage points.

3) You must provide one spreadsheet for each of the three situations—the base case estimate, the best case, and the worst case.

4) What do you recommend? Explain. You may type your recommendation and explanation on the Excel sheet.

Please provide ALL formula so that I can gain a better understanding.

The ABCD Co. wants to add a production line. To do this, the company must spend $200,000 to expand its current building and purchase $1 million in new equipment. The new production line is expected to produce 100,000 units per year of a new product, which has a projected sales price of $7.75 per unit and a variable cost of $3.90 per unit. Introducing the new product is expected to cause sales of existing products to decrease by $89,000 per year and existing costs to decline by $49,000 per year. Fixed costs of the new line will be $142,000 annually. The company expects net working capital to increase by $1,800,000 when the new line is added, and then decrease by that amount when the project ends in five years. ABCD also expects to sell the equipment and building space at the end of the project in five years to net $320,990.36 after taxes. The company has a 34 percent marginal tax rate. ABCD’s cost of capital is 11%. Depreciation would be as follows, Year 1: $206,349.20 Year 2: $326,349.20 Year 3: $198,349.20 Year 4: $121,549.20 Year 5: $121,549.20

Question 2 – Cost Allocation: Joint Products and Byproducts

Tivoli Labs produces a drug used for the treatment of hypertension. The drug is produced in batches. Chemicals costing $60,000 are mixed and heated, creating a reaction; a unique separation process then extracts the drug from the mixture. A batch yields a total of 2,500 gallons of the chemicals. The first 2,000 gallons are sold for human use while the last 500 gallons, which contain impurities, are sold to veterinarians.

The costs of mixing, heating, and extracting the drug amount to $90,000 per batch. The output sold for human use is pasteurized at a total cost of $120,000 and is sold for $585 per gallon. The product sold to veterinarians is irradiated at a cost of $10 per gallon and is sold for $410 per gallon.

In March, Tivoli, which had no opening inventory, processed one batch of chemicals. It sold 1,700 gallons of product for human use and 300 gallons of the veterinarian product. Tivoli uses the net realizable value method for allocating joint production costs.

Required:

1.   How much in joint costs does Tivoli allocate to each product?

2.   Compute the cost of ending inventory for each of Tivoli’s products.

3.   If Tivoli were to use the constant gross-margin percentage NRV method instead, how would it allocate its joint costs?

4.   Calculate the gross margin on the sale of the product for human use in March under the constant gross-margin percentage NRV method.

5.   Suppose that the separation process also yields 300 pints of a toxic byproduct. Tivoli currently pays a hauling company $5,000 to dispose of this byproduct. Tivoli is contacted by a firm interested in purchasing a modified form of this byproduct for a total price of $6,000. Tivoli estimates that it will cost about $30 per pint to do the required modification. Should Tivoli accept the offer?

Garner Strategy Institute (GSI) presents executive-level training seminars nationally. Eastern University (EU) has approached GSI to present 40 one-week seminars during 2019. This activity level represents the maximum number of seminars that GSI is capable of presenting annually. GSI staff would present the week-long seminars in various cities throughout the United States and Canada. Terry Garner, GSI’s president, is evaluating three financial options for the revenues from Eastern: accept a flat fee for each seminar, receive a percentage of Eastern’s profit before tax from the seminars, and form a joint venture to share costs and profits. Estimated costs for the 2019 seminar schedule follow: Garner Strategy Institute Eastern University Fixed costs for the year: Salaries and benefits $ 200,000 N/A * Facilities 46,000 N/A * Travel and hotel 0 $ 360,920 Other 72,000 N/A * Total fixed costs $ 318,000 $ 360,920 Variable cost per participant: Supplies and materials 0 $ 47 Marketing 0 18 Other site costs 0 35 *Eastern’s fixed costs are excluded because the amounts are not considered relevant for this decision (i.e., they will be incurred whether or not the seminars are presented). Eastern does not include these costs when calculating the profit before tax for the seminars. EU plans to charge $1,200 per participant for each 1-week seminar. It will pay all variable marketing, site costs, and materials costs. Required 1. Assume that the seminars are handled as a joint venture by GSI and EU to pool costs and revenues. a. Determine the total number of seminar participants needed to break even on the total costs for this joint venture. b. Assume that the joint venture has an effective income tax rate of 30%. How many seminar participants must the joint venture enroll to earn an after-tax income of $97,209? 2. Assume that GSI and EU do not form a joint venture, but that GSI is an independent contractor for EU. EU offers two payment options to GSI: a flat fee of $9,500 for each seminar or a fee of 40% of EU’s profit before taxes from the seminars. Compute the minimum number of participants needed for GSI to prefer the 40% fee option over the flat fee.

double figures for fixed assets because there are 2, one for gsi and one for eu

State, without proofs all theorems of neutral geometry that permit to construct a midpoint of a given segment.

State, without proofs all theorems of Euclidean geometry that permit to execute your construction in the Poincare the Model of the Hyperbolic geometry.

Discuss the design, construction and installation of both solid and oil-filled high voltage cablee, and describe the techniques which may be used to minimise sheath losses in such cables. Indicate the limitations of conventional cables for bulk power transmission.

Describe an issue associated with healthcare data that impedes the construction of meaningful databases and inhibits the data mining process. What strategies would you use to remedy this situation? Thoroughly describe one strategy and its potential outcomes.

Trace the evolution of gender roles among western civilizations from ancient times to the medieval era. What influences the construction of gender norms? What do gender roles tell us about how society develops?

Bacterial enzymes participate in the construction of the bacterial cell wall. Penicillin targets these enzymes and interferes with:

A. the channels in the cell's internal structure.

B. protein synthesis.

C. bacterial DNA.

D. the addition of cross-links to the cell wall.

Construction - Masonry

Once you have reached your elevation grade, what would be the next step to fill the cavities and what are the benefits of filling the cavities? There is more than one method that can be used to accomplish this goal.