Determine what would be lowest bid of sfi , Macroeconomics

Assignment Help:

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?


Related Discussions:- Determine what would be lowest bid of sfi

What is causing the rise in the price of oil, The rise in the price of oil ...

The rise in the price of oil can be traced to a easy factor, but there are various other contributing factors. The easiest explanation is that the demand for oil is greater than

What are the responsibilities of central banks, What are the Responsibiliti...

What are the Responsibilities of central banks Responsibilities include providing banking services to commercial banks and the government and regulating financial markets and i

What is investment demand, Q. What is Investment demand? Investment de...

Q. What is Investment demand? Investment demand  Investment I(r) is assumed to be negatively related to the real interest rate r Total dema

Production function stuff, 1. Given the following production function: ...

1. Given the following production function: Y = K1/4 L3/4 Find the following: a. Per worker production function. b. Steady-state capital-labor ratio as a function of d and

Currency, Assume that Jimmy Cash has $2000 in his checking account and uses...

Assume that Jimmy Cash has $2000 in his checking account and uses his checking card to withdraw $200 from his ATM machine. By what amount did M1 change from this individual transac

Market demand and market supply for fish, Consider a market for fish whose ...

Consider a market for fish whose market demand and market supply for fish is specified as Qd = 300 - 2.5 P and Qs = - 20 + 1.5 P respectively. The equilibrium price and quantity is

Mulitplier, Hello, I am having difficulty in understanding what multiplier ...

Hello, I am having difficulty in understanding what multiplier is.

Agency decides to hire operators, An agency is having problems with persona...

An agency is having problems with personal phone calls made during working hours. Each minute of a personal call costs the agency $0.50 in wasted wages. The agency decides to hire

Show the example on IS-curve, Q. Show the example on IS-curve? Fi...

Q. Show the example on IS-curve? Figure We can explain this argument with the above figure.  1. Start by identifying R 1 and R 2 in lower graph.  2. Draw aggr

Senator is considering tax, You are an assistant to a senator who chairs an...

You are an assistant to a senator who chairs an ad hoc committee on reforming taxes on telecommunication services. Based on your research, AT&T has spent over $15 million on relate

Write Your Message!

Captcha
Free Assignment Quote

Assured A++ Grade

Get guaranteed satisfaction & time on delivery in every assignment order you paid with us! We ensure premium quality solution document along with free turntin report!

All rights reserved! Copyrights ©2019-2020 ExpertsMind IT Educational Pvt Ltd