Determine what would be lowest bid of sfi , Macroeconomics

Snake Farm Inc. (SFI) has been offered to submit a competitive bid for building 31 and 22, 18, and 11offshore pits per year for Athletic Inc. over the next four years.  If the bid is accepted, SFI will be also construct 49, 51, 27, and 13 offshore pits per year for the next four year for other clients at a guaranteed price of $153 million per pit. SFI will be spending $2,400M in new capital spending in order to build these pits.  Each pit costs $72 million in materials.  To run the facilities in which the pits are going to be built, SFI has to spend $1,100M annually in fixed costs.  SFI needs to increase its net working capital initially by $701M and every year after with 15% of the next year's change in sales.  SFI can sell the facilities and equipment for $700M in four years.  SFI uses an accelerated depreciation method which has the following schedule: Year 1, 16%Year 2, 44%; Year 3, 26%; Year 4, 9%; Year 5, 6%.  SFI's cost of capital is 20%.  SFI has a hurdle IRR rate of 30% to accept any new projects. SFI's tax rate is 45%. SFI's WACC is 20%.  SFI would set up a separate corporate entity to do this project and thus there are no subsidizations across divisions. Income tax is treated differently from the capital gain/loss taxes.

A.  What is the lowest bid that SFI can make without violating the capital budgeting criterion for accepting new projects, if there are no tax-loss-carry provisions?

B.  Determine what would be lowest bid that SFI can make without violating the capital budgeting criterion for accepting new projects, IF (1) the depreciation method is changed to straight-line (for 4 years with zero accounting salvage value) and (2) there exist a carry forward (indefinitely in future) tax loss provision?

Posted Date: 3/21/2013 2:10:37 AM | Location : United States







Related Discussions:- Determine what would be lowest bid of sfi , Assignment Help, Ask Question on Determine what would be lowest bid of sfi , Get Answer, Expert's Help, Determine what would be lowest bid of sfi Discussions

Write discussion on Determine what would be lowest bid of sfi
Your posts are moderated
Related Questions
Money is anything which is acceptable in settlement of a debt. But, paradoxically, the main asset used to settle debts in modern economies is other debts. After all, bank deposits

In our 2 period consumption savings model (with no leisure, u(c1, c2), suppose interest income in period 2 is taxed at the rates, where 0 a) Write down period 1 and period 2 bu

Below is a simple/familiar (I hope) worksheet for the "Dice Game".  Answer the following questions given the data for the each Work Center's scheduled production:

Liberalisation and Changing Sources of FDI: European countries  had been major sources of FDI inflows  to India until 1990. However, their relative importance declined in the

use a graph of the classical labour market to illustrate the effects of a real wage existing in the market that is lower thhan the equilibrium real wage

Who is considered unemployed?

Suppose that an investment tax credit is stated to be temporary in nature, and the credit will be 10% on newly acquired capital (investment) equipment and will last just one year o

illustrate and discuss the market structures competitiveand non competitive for price determination

Consider an economy that having only of those who bake bread and those who make its ingredients. Assume that this economy's production is as follows: 1 million loaves of bread

What are the indicators of development? Economic development is a complicated multi-dimensional idea. Preferably each aspect of development needs its own indicator. • Prof