Construct a full pro-forma statement

Assignment Help Finance Basics
Reference no: EM132235118

Wacky Widgets, Incorporated is considering a new three-year expansion project to make new Widgets. It requires an initial fixed investment of \$2.7 million. The fixed asset will be depreciated straight-line to zero over its three-year tax life, after which it will be sold for \$50,000 to a scrapyard. The fixed asset will take 2 years to install, so revenue will begin in year 2.

The project is estimated to generate \$2,800,000 in annual sales, with variable costs of 40 percent. There are no fixed costs, and working capital requirements are 5% of annual revenues. The tax rate is 35 percent and the required rate of return is 15 percent. The risk-free rate is 9 percent. Your firm requires a payback period of 3 years to approve a project.

The Widget produced by this product will often go to the same customers as the Bidget, another product produced by Wacky Widgets. They will often be shipped in the same package as another product the firm produces. It will not reduce the overhead on producing Widgets, but it will reduce the cost of shipping Bidgets by \$20,000 per year in years 2 - 4.

a) Construct a full pro-forma statement for this project's projected incremental cash flows.

a) What is the payback period? Based on this decision rule, should you do the project?

What are the monthly payments

You wish to buy a \$10,900 dining room set. The furniture store offers you a 2-year loan with an 11 percent APR. 1. What are the monthly payments? 2. How would the payment diff

What are the totals of assets and liabilities for business

They also have \$18,500 in business equipment they own, and owe \$1,600 in loans for new equipment. According to this list, what are the totals of assets and liabilities for t

Four time value of money concepts

Explain the four time value of money concepts - present value, present value of an annuity, future value, and future value of annuity.

What is the amount of the depreciation expense

1. What is the amount of the depreciation expense for the fourth year for this company if it just purchased some fixed assets classified as 5-year property for MACRS? The

What was the firm cash flow to creditors during 2009

The 2008 balance sheet of Maria's Tennis Shop, Inc., showed long-term debt of \$3 million, and the 2009 balance sheet showed long-term debt of \$4 million. The 2009 income sta

Calculate what is the present value of the given annuity

Finance 330- What is the present value of the following annuity? \$1,509 every quarter year at the end of the quarter for the next 7 years, discounted back to the present at

Management of working capital

Use the Internet to research cutting-edge technology applied to the management of working capital. Based on what you discovered in the internet research, analyze cash manag

What is the current bond price

3. (TCOs 2 and 3) Bey Co. issued 20-year, \$1,000 bonds at a coupon rate of 7 percent. The bonds make annual payments. If the YTM on these bonds is 5 percent, what is the curre