BUSA 5062 Finance Problem
Click Link Below To Buy:
Contact
Us:
Hwcoursehelp@gmail.com
1. Calculating
project NPV [LO01] You have been hired
as a consultant for Pristine Urban-Tech Zither, Inc. (PUTZ), manufactures of
fine zithers. The market for zithers is growing quickly. The company bought
some land three years ago $1.4 million in anticipation of using it as a toxic
waste dump site but has recently hired another company to handle all toxic
materials. Based n a recent appraisal, the company believes it could sell the
land for $1.5 million on an aftertax basis. The company also hired a marketing
firm to analyze the zither market, at a cost of $125,000. An excerpt of the
marketing report is as follows:
The zither
industry will have a rapid expansion in the next four years. With the 2,800
units each year for brand name recognition that PUTZ brings to bear, we feel
that the company will be able to sell 3,200,4,300, 3,900, and each year for the
next four years, respectively. Again, capitalizing on the name recognizing of
PUTZ, we feel that a premium price of $ 780 can be charged for each zither.
Because zithers appear to be a fad, we feel at the end of the four-year period,
sales should be discontinued.
PUTZ believes that fixed costs
for the project will be $425,000 per year, and variable costs are 15 percent of
sales. The equipment necessary for production will cost $4.2 million and will
be depreciated according to a three-year MACRS schedule. At the end of the
project, the equipment can be scrapped for $400,000. Net working capital of
$125,000 will be required immediately. PUTZ has a38 percent tax rate, and the
required return on the project is 13 percent. What is the NPV of the project?
Assume the company has other profitable projects.
2. Project
Evaluation: [LO1] Aguilera Acoustics, Inc. (AAI), projects unit sales for a new
seven-octave voice emulation implant as follows:
|
Year
|
Unit
Sales
|
|
1
|
93,000
|
|
2
|
105,000
|
|
3
|
128,000
|
|
4
|
134,000
|
|
5
|
87,000
|
Production of the implants will
require $1,800,000 in net working capital to start and additional net working
capital investments each year equal to 15 percent of the projected sales
increase for the following year. Total fixed costs are $1,200,000per year,
variable production costs are $265 per unit, and the units are priced at $380
each. The equipment needed to begin production has an installed cost of
$24,000,000. Because the implants are intended for professional singers, this
equipment is considered industrial machinery and thus qualifies as seven-year
MACRS property. Base on these preliminary project estimates, what is the NPV of
the project? What is the IRR?
No comments:
Post a Comment