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Model: Issues in Capital Budgeting Start with the partial model in the file Ch11 P18 Build a Model.xls on the textbook'sWeb site. Webmasters.com has developed a powerful new server that would be usedfor corporations' Internet activities. It would cost $10 million at Year 0 to buy the equipment necessary to manufacture the server. The project would require net working capital at the beginning of a year in an amount equal to 10% of the year's projected sales: NOWC0 = 10%(Sales1). The servers would sell for $24,000 per unit, and Webmasters believes that variable costs would amount to $17,500 per unit. After Year 1, the sales price and variable costs will increase at the inflation rate of 3%. The company's nonvariable costs would be $1 million at Year 1 and would increase with inflation. The server project would have a life of 4 years. If the project is undertaken, it must be continued for the entire 4 years. Also, the project's returns are expected to be highly correlated with returns on the firm's other assets. The firm believes it could sell 1,000 units per year. The equipment would be depreciated over a 5-year period, using MACRS rates. The estimated market value of the equipment at the end of the project's 4-year life is $500,000. Webmasters' federal-plus-state tax rate is 40%. Its cost of capital is 10% for average-risk projects, defined as projects with an NPV coefficient of variation between 0.8 and 1.2. Low-risk projects are evaluated with aWACC of 8% and high-risk projects at 13%. a. Develop a spreadsheet model, and use it to find the project's NPV, IRR, and payback. b. Now conduct a sensitivity analysis to determine the sensitivity of NPV to changes in the sales price, variable costs per unit, and number of units sold. Set these variables' values at 10% and 20% above and below their base-case values. Include a graph in your analysis. c. Now conduct a scenario analysis. Assume that there is a 25% probability that best-case conditions, with each of the variables discussed in part b being 20% better than its base-case value, will occur. There is a 25% probability of worst-case conditions, with the variables 20% worse than base, and a 50% probability of base-case conditions. d. If the project appears to be more or less risky than an average project, find its riskadjusted NPV, IRR, and payback. e. On the basis of information in the problem, would you recommend that the project be accepted?
A Corporation is about to sell a $100 million issue of bonds. The covenants on the loan need that firm maintain a coverage of its interest plus sinking fund of 2.5 to 1
Francisco's incremental borrowing rate is 12% for this type of lease. The implicit rate of 10% is known by the lessee. What should be the balance in Francisco lease liability at December 31, 2012?
finance is fun ltd has the following structure 10000000 four year bonds with a coupon of 8.5 trading at 94 and 3
XYZ company has a balloon payment coming due from the recent acquisition. What TVM concept (s) is represented in the condition? What is the value of money represented by the situation?
The zero coupon bonds of D&L movers have a market price of $319.24, a face value of $1,000, and a yield to maturity of 9.17 percent. How many years is it until these bonds mature?
According on my team member's skills, Discuss the types of consulting company that might use the skills of the team members. The firms I would like you to discuss are HR, financial, and logistics.
q. north bank awards thirty-year mortgages for the total amount of 100 million. these mortgages need payments of
q.abc company plans to issue 20000000 of 20-year bonds next june with semi-annual interest payments. companys present
Journal entry to record the issuance of bonds and interest payment on such bonds and Calculation of Bond interest expense
Identify a product offered through a manufacturer using a dual distribution method. Are there differences between the customers targeted by each channel? How do the purchase experiences differ?
The discount rate of a fund is 4% convertible quarterly. If the total amount of interest earned for a deposit of $X is $500 during a four year period, how much total interest is earned for a deposit $X during a fifteen year period?
nugent communication corp. is investing 10800655 in new technologies. the company expects significant benefits in the
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