Login

Create Account
+14156709189
info@expertsmind.com
Submit Homework/Assignment
Get quote & make Payment
Get Solution
Capital Budgeting, Corporate Finance
Suppose that Oxford Inc. is interested in the two new products, AME and CGK. Because of its capital budget constraint, it can only launch one new product line. Eric just graduated from the School of Administrative Studies at York University and works for Oxford as an analyst. On Thursday, his manager asked him to evaluate the two new product lines and needs the recommendation by next Monday. Necessary equipment for the production line AME will cost $10 million, including installation costs. Product line AME will also require an initial investment of $3million in net working capital. Product line AME will generate pretax revenues that are $5.6 million for the first year. Then the pretax revenue will grow at an annual rate of 2 percent for the next 14 years. A new technology will replace the product AME after that. The pretax operating costs will be $2.2 million/year for the first 10 years, then $3.3 million/year for the next 5 years. The salvage value of AME will be $0.39 million at the end of year 15.
New equipment and installation costs for product line CGK will be $ 7 million and the initial working capital requirement will also be $3million. Production line CGK will generate pretax revenues that are $4.8 million for the first year. Then the pretax revenue will then increase at an annual rate of 3 percent for the next 14 years. A new model is in R&D process and will replace the CGK after that. The pretax operating costs will be $2.5 million/year for the first year and then grow at an annual rate of 2 percent for the next 14 years. The salvage value of CGK will be $0.27 million at the end of year 15.
The initial equipment purchase falls into a CCA Asset Class 8 at a rate of 20 percent, regardless of which alternative is chosen. Oxford''''s corporate tax rate is 40 percent and its rate of required return on such investments is 12 percent. Assume the initial working capital investment will be made at the time of the purchase the equipment for either product line. For simplicity, all cash flows for a given year occur at the end of the year.
If you were Eric, which new product line would you recommend on the basis of NPV and IRR?
Posted Date: 2/26/2013 12:40:45 PM  Location : Canada
Ask an Expert
Related Discussions:
Capital Budgeting, Assignment Help, Ask Question on Capital Budgeting, Get Answer, Expert's Help, Capital Budgeting Discussions
Write discussion on Capital Budgeting
Your posts are moderated
Write your message here..
Related Questions
Weighted avarage cost of capital, how to calculate cost of equity
how to calculate cost of equity
Interest Rates and Bond Valuation, Bond J is a 4 percent coupon bond. Bond ...
Bond J is a 4 percent coupon bond. Bond K is a 12 percent coupon bond. Both bonds have 8 years to maturity, make semiannual payments and have a YTM of 7 percent....what are the mon
Find weighted average cost of capital  yield to maturity, Monsanto Company...
Monsanto Company has 3 million shares, selling at $25 each. The company has just paid a dividend of $1.35 and the next year's dividend is expected to be $1.50, which is in line wit
Calculate the cost of capital for the project, Calculate the cost of capita...
Calculate the cost of capital for the project? (a) Describe how the weighted cost of capital for an MNC can be calculated? (b) Assume that a foreign project has a beta of 0.
Antamina mines, i need to find out how quickly i could get some answers to ...
i need to find out how quickly i could get some answers to stock valuation questions on antamina mines case and how cheaply
Corporate identity in marketing, a) Describe what you understand by corpora...
a) Describe what you understand by corporate identity in marketing. b) Show how corporate identity is normally visibly manifested. c) Management has delegated you the role o
Merger and aquisition, It is given that company A will acquire company B wi...
It is given that company A will acquire company B with shares of common stock. Present earnings of A is rs. 20 million and of company B is rs. 5 million. Earning price per share of
Renowned Cola, corporate finance, Financial Accounting Calculate the market...
corporate finance, Financial Accounting Calculate the market value of Renowned Cola''''s debt at yearend 2005. What is the book value of debt? Why do usually use market or book va
RISK, Calculate arithmetic returns and riskpremium of stocks. Describe the...
Calculate arithmetic returns and riskpremium of stocks. Describe the stock market behavior. Calculate expected return, variance and standard deviation for individual stocks and po
Management, i need a assignment on uk company to be submitted in my colleg...
i need a assignment on uk company to be submitted in my college how can u help
Assignment Help
Accounting Assignment Help
Economics Assignment Help
Finance Assignment Help
Statistics Assignment Help
Physics Assignment Help
Chemistry Assignment Help
Math Assignment Help
Biology Assignment Help
English Assignment Help
Management Assignment Help
Engineering Assignment Help
Programming Assignment Help
Computer Science Assignment Help
IT Courses and Help
ExpertsMind Services
Online Tutoring
Projects Assistance
Exam Preparation
Coursework Help
Programming Courses
Engineering Courses
Why Us ?
~Experienced Tutors
~24x7 hrs Support
~Plagiarism Free
~Quality of Work
~Time on Delivery
~Privacy of Work