Reference no: EM131358536
You are considering the purchase of a new zippy fabricating machine for your firm, Cherry Enterprises, Inc. CEI makes novelty items for wholesale to retail outlets located in tourist traps. The purchase of the zippy will allow CEI to market a new product, a walking stick with built-in bear repellant. In order to analyze the decisions to manufacture and sell the walking sticks and to lease the zippy, you have collected the following data, some of which may be relevant (all dollars in 2016 prices):
Cost of zippy = $8,000,000
Useful (and depreciable) life of zippy = 10 years
Salvage value (market and depreciation) of zippy = $0
Expected walking stick sales volume (in lots of 1000) = 2500/year
Wholesale price per 1000 lot of walking sticks = $999
Annual zippy maintenance contract costs = $110,000 (the only fixed cash cost)
Average variable cost per lot of walking sticks = $525
Additional working capital (supplies inventory) required at beginning of year 1 = $200,000
Current equity = $50,000,000
Current debt = $50,000,000
Marginal tax rate for CEI = 30%
Inflation rate = .03
Zippy can be financed in several ways. The following data pertain to financing options:
Required return on equity (real) = .05
Bank loan interest rate available, given current capital structure = .055
Lease contract with payments made in 10 equal annual installments, beginning at start of
lease period. Lease contract includes maintenance costs. Payment = $1,100,000
Evaluate the zippy as a business opportunity for CEI. Evaluate the lease financing option for the zippy as well. Use the “easy way” to value a financial lease which is to discount the lease cash flows at the after-tax interest rate that the firm would pay on an equivalent loan. Although CEI is a tax-paying entity and could benefit from the use of MACRS depreciation, for simplicity here use straight-line depreciation expense recognition.
|
What will occur in the bank net interest income
: If a bank's net interest margin , which was 1.75%, increases 20 percent and its total assets, which stood originally at $450 million, decline 5%, what will occur in the bank's net interest income? Which of the following are tier one capital?
|
|
Weighted average of the risk rating of the two investment
: A person invest all 50000 in two stocks: stock A has an expected annual return of 1 % and a risk rating of 2 and stock B has an expected annual return of 6% and a risk rating of 7. The risk rating of total investment is the weighted average of the r..
|
|
Healthcare are very important aspects of our lives
: The environment and healthcare are very important aspects of our lives, and may have ethical implications. However, it is still unclear whether corporations should focus on these as rights or as privileges.
|
|
Complete the nih protecting human research participants
: Share your reaction to this course. Next, research your workplace organization to find out how research is conducted that involves human participants. For example, is there an IRB or ethics committee? If so, do they review proposals? Next, find ou..
|
|
Evaluate the lease financing option for the zippy as well
: You are considering the purchase of a new zippy fabricating machine for your firm, Cherry Enterprises, Inc. CEI makes novelty items for wholesale to retail outlets located in tourist traps. Evaluate the zippy as a business opportunity for CEI. Evalua..
|
|
Compute the stresses on all laminae
: Compute the strains εx, εy, γxy at the interface between laminae, the stresses σx, σy, τxy on all laminae, right next to the interface.
|
|
General description that includes a brief history
: Company name (Starbucks) and general description that includes a brief history. A brief overview of their products and/or services and how they meet the needs of customers.
|
|
What is the approximate duration on this bond
: The bank invested portfolio owns a bond with a 15 year maturity, coupon of 5% semianually, paid a price of $1,075 for the bond. What is tthe YTM on this bond? if interest rates rise 100 basis points what will the new price on the bond be? What is the..
|
|
Identify domestic and global environments
: 1. Identify Domestic and Global Environments (countries) that are in opposing cultural clusters (as identified in International business: theory and practice) identify which cluster(s) your two countries fit.
|