Business, 05.05.2020 16:44 haftjnd9156
You are a manager at Advanced Plastics, which is considering expanding its operations into 3D manufacturing. Your boss comes into your office, drops a consultant’s report on your desk, and complains, "We owe these consultants $1.5 million for this report, and I am not sure their analysis makes sense. Before we spend the $30 million on new equipment needed for this project, look it over and give me your opinion." You open the report and find the following estimates (in thousands of dollars): Year 1 Year 2 … Year 9 Year 10Sales $ 40,000 $ 40,000 … $ 40,000 $ 40,000- COGS $ 28,000 $ 28,000 … $ 28,000 $ 28,000= Gross Profit $ 12,000 $ 12,000 … $ 12,000 $ 12,000- General and Admin. Exp. $ 3,000 $ 3,000 … $ 3,000 $ 3,000- Depreciation $ 3,000 $ 3,000 … $ 3,000 $ 3,000= Net Operating Income $ 6,000 $ 6,000 … $ 6,000 $ 6,000- Taxes $ 2,400 $ 2,400 … $ 2,400 $ 2,400Net Income $ 3,600 $ 3,600 … $ 3,600 $ 3,6001. All of the estimates in the report seem correct. You note that the consultants used straight-line depreciation for the new equipment that will be purchased today (year 0), which is what the accounting department recommended. The report concludes that because the project will increase earnings by $3.6 million per year for 10 years, the project is worth $36 million, more than the cost of the equipment required. You think back to your halcyon days in finance class and realize there is more work to be done!2. First, you note that the consultants have not factored in the fact that the project will require $15 million in working capital up-front (year 0), which will be fully recovered in year 10. Next, you see they have attributed $3 million of general and administrative expenses to the project, but you know that $2 million of this amount is overhead that will be incurred even if the project is not accepted. Finally, you know that accounting earnings are not the right thing on which to focus.3. Given the available information, calculate the free cash flows for the proposed project and estimate its value using a 16 percent weighted average cost of capital. Should your firm undertake this project?
Answers: 2
Business, 22.06.2019 06:40, Amber423
As a finance manager at allsports communication, charlie worries about the firm's borrowing requirements for the upcoming year. he knows the benefit of estimating allsports' cash disbursements and short-term investment expectations. facing these concerns, a(n) would provide charlie with valuable information by providing a good estimation of whether the firm will need to do short-term borrowing. capital budget cash budget operating budget line item budget
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Suppose a holiday inn hotel has annual fixed costs applicable to its rooms of $1.2 million for its 300-room hotel, average daily room rents of $50, and average variable costs of $10 for each room rented. it operates 365 days per year. the amount of operating income on rooms, assuming an occupancy* rate of 80% for the year, that will be generated for the entire year is *occupancy = % of rooms rented
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You are a manager at Advanced Plastics, which is considering expanding its operations into 3D manufa...
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