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Compute and analyze items - projected income statement

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Reference no: EM131258285

QUESTION ONE

Printers Inc., is considering investing in a new plant to manufacturer a new generation of printers developed by 5he firm's research and development (R&D) department.

1. Projects useful life: The company expects the plant to operate for five years

2. Capital expenditure: $6million, which includes the construction costs and the costs of machinery and installation. The plant will be built on a parking lot owned by the company

3. Depreciation: For tax purposes ,the building and equipment will be depreciated over ten years using straight -line method

4. Revenue: The Company expects to sell 5,000 printers in year one, 10,000 in year two, and 20,000 thereafter. The printers will be sold at $800 each

5. R&D costs: $1million spent a year ago and this year

6. Overhead costs: 3.75 percent of the project revenues ,as stipulated by the corporate manual

7. Operating costs: Direct and indirect costs are expected to be $500 per unit produced

8. Inventories :The initial investment in raw, working in progress, and finished goods inventories is estimated at $1,500,000

9. Financing cost:10 percent of capital expenditures per year ,as stipulated by the corporate manual

10. Tax rate : 40 percent (includes federal and state taxes)

11. Discount rate: 8 percent .This is printers Inc.'s current borrowing rate.

 

NOW

YEAR 1

YEAR 2

YEAR 3

YEAR 4

YEAR 5
  1. Capital expenditure

-$6,000

 

 

 

 

 
  1. Inventories

-1,500

 

 

 

 

 
  1. R&D expenses

-1,000

 

 

 

 

 
  1. Revenue

 

 

 

 

 

 
  1. Overhead costs

 

 

 

 

 

 
  1. Operating costs

 

 

 

 

 

 
  1. Depreciation

 

 

 

 

 

 
  1. EBIT

 

 

 

 

 

 
  1. EAT

 

 

 

 

 

 
  1. Add depreciation

 

 

 

 

 

 
  1. Net cash flow

-$8,500,

 

 

 

 

 
  1. Discount rate

8%

 

 

 

 

 

Required

1. Compute and analyze items (a) through (h) using a Microsoft Excel spreadsheet.

a) 5-year projected income statement

b) 5-year projected cash flow

Calculate

c) The Payback period

d) Discounted Payback

e) The Profitability Index

f) The Net Present Value

g) The Internal Rate of Return

Verified Expert

This is a Capital budgeting analysis which requires calculating the projected Income Statement and Net Cash Flow over the life of the investment. In addition, it also requires carrying out a financial analysis using capital budgeting tools for the proposed investment by implementing NPV, IRR, Payback, Discount Payback and Profitability index

Reference no: EM131258285

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Reviews

len1258285

10/27/2016 1:18:40 AM

Kindly do the assignment for me accordingly - Projects useful life: The company expects the plant to operate for five years - Depreciation: For tax purposes ,the building and equipment will be depreciated over ten years using straight –line method

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