Question

_{This case continues following the new project of the
WePPROMOTE Company, that you and your partner own. WePROMOTE is in
the promotional materials business. The project being considered is
to manufacture a very unique case for smart phones. The case is
very durable, attractive and fits virtually all models of smart
phone. It will also have the logo of your client, a prominent,
local company and is planned to be given away at public relations
events by your client.}

_{As we know from prior cases involving this company, more
and more details of the project become apparent and with more
precision and certainty.}

_{The following are the final values to the data that you
have been estimating up to this point:}

_{You can borrow funds from your bank at 3%.
The cost to install the needed equipment will be $105,000 and this
cost is incurred prior to any cash is received by the
project.
The gross revenues from the project will be $25,000 for year 1,
then $27,000 for years 2 and 3. Year 4 will be $28,000 and year 5
(the last year of the project) will be $23,000.
The expected annual cash outflows (current project costs) are
estimated at being $13,000 for the first year, then $12,000 for
years 2, 3, and 4. The final year costs will be $10,000.
Your tax rate is 30% and you plan to depreciate the equipment on a
straight-line basis for the life of the equipment.
After 5 years the equipment will stop working and will have a
residual (salvage) value of $5,000).
The discount rate you are assuming is now 7%.}

_{Requirements of the paper:}

_{Perform the final NPV calculations and provide a narrative
of how you calculated the computations and why.
Then provide a summary conclusion on whether you should continue to
pursue this business opportunity.
Research, using at least three sources other than the textbook
materials that support your calculations and conclusions.}

_{Papers will be assessed on the following
criteria:}

_{Provide the final, accurate NPV calculations.
A narrative on how the NPVs were calculated. The narrative should
include how the data relating to depreciation and its tax
consequences affect the cash flow of the project.
Supporting narrative based on research of sources other than the
textbook materials.
Provide a conclusion on whether this business opportunity should be
pursued.}

Answer #1

This case continues following the new project of the WePPROMOTE
Company, that you and your partner own. WePROMOTE is in the
promotional materials business. The project being considered is to
manufacture a very unique case for smart phones. The case is very
durable, attractive and fits virtually all models of smart phone.
It will also have the logo of your client, a prominent, local
company and is planned to be given away at public relations events
by your client. More...

Your company is considering a new project, and you have the
following information:
Two years ago, the company paid $1,000,000 for the land and
building that will house the project. The property could be sold
for $3,000,000 today. Its book value is the purchase price.
One year ago, the firm spent $100,000 on initial marketing for
the project.
The project requires the purchase of a machine (in year 0) for
$500,000. The machine will be fully depreciated straight-line in
years...

It will cost you $840,000 to buy a factory. Your research shows
that it will payoff $210,000 at the end of each year for 10 years.
You are a smart person so your opportunity cost of capital is
14%.
What is the NPV of the factory?
What could you sell the factory for after 5 years?

New-Project Analysis
The president of the company you work for has asked you to
evaluate the proposed acquisition of a new chromatograph for the
firm’s R&D department. The equipment's basic price is $73,000,
and it would cost another $18,500 to modify it for special use by
your firm. The chromatograph, which falls into the MACRS 3-year
class, would be sold after 3 years for $29,500. The MACRS rates for
the first 3 years are 0.3333, 0.4445 and 0.1481. Use of...

New-Project Analysis
The president of the company you work for has asked you to
evaluate the proposed acquisition of a new chromatograph for the
firm’s R&D department. The equipment's basic price is $73,000,
and it would cost another $15,000 to modify it for special use by
your firm. The chromatograph, which falls into the MACRS 3-year
class, would be sold after 3 years for $31,800. The MACRS rates for
the first 3 years are 0.3333, 0.4445 and 0.1481. Use of...

An analyst brings you a project. She expects there to be
operating cash flow of $500,000 for the first year, and then it
will decease by 10% for six more years. You need to contribute
$70,000 in net working capital. You will salvage 50% of that back
when the project ends in seven years. You need to purchase
$1,800,000 of equipment at the beginning and then another $100,000
in year three. No salvage for equipment. You know your company’s
WACC...

in
the analyst brings you a project. She expect there to be an
operating cash flow of 500,000 for the first year and then it will
decrease by 10% for six more years. You need to contribute 70,000
in networking capital. You will salvage 50% of that back when the
project ends in seven years. You need to purchase $1,800,000 of
equipment at the beginning and then another hundred thousand
dollars in year three. No salvage for equipment. You know...

We assume that the company you selected is considering a new
project. The project has 8 years’ life. This project requires
initial investment of $330 million to purchase equipment, and $25
million for shipping & installation fee. The fixed assets fall
in the 7-year MACRS class. The number of units of the new product
expected to be sold in the first year is 1,350,000 and the expected
annual growth rate is 5%. The sales price is $250 per unit and...

An analyst brings you a project. She expects there to be
operating cash flow of $500,000 for the first year, and then it
will decease by 10% for six more years. You need to contribute
$70,000 in net working capital. You will salvage 50% of that back
when the project ends in seven years. You need to purchase
$1,800,000 of equipment at the beginning and then another $100,000
in year three. No salvage for equipment. You know your company’s
WACC...

Your company is considering starting a new project in either
France or Canada—these projects are mutually exclusive, so your
boss has asked you to analyze the projects and then tell her which
project will create more value for the company’s stockholders.
The French project is a six-year project that is expected to
produce the following cash flows:
Project:
French
Year 0:
–$975,000
Year 1:
$350,000
Year 2:
$370,000
Year 3:
$390,000
Year 4:
$320,000
Year 5:
$115,000
Year 6:
$80,000...

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