Mr. Martínez is the owner of a company dedicated to the production of renewableenergy. Nowadays, his business has good cash flows due to the increase in demand inthis area. However, to be more competitive he needs cost efficiency with his suppliers.The average financing need ranges between $600,000 and $1,200,000 pesos per year.The following is requested:1. Introduction, that is, what is expected with the resolution of this exercise.2. Define first what is the need to solve.3. Investigate the options offered by financial institutions.

Martinez is in the production of renewable financing. The competition has increased and the resorts…

Answered: Mr. Martínez is the owner of a company…

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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Please show all work and explain each step. DO NOT use Excel.
You are looking for security for your business. Your firm does highly confidential work so you absolutely must have security. You have found two options. The first option is a high tech solution with door sensors, motion detectors, cameras and card readers for door access. The second option is rather low tech. You would upgrade your door locks and hire a guard to be on duty overnight. The costs for each of these options is shown below. If your cost of capital is 8% which option should you select? Support your answer with the appropriate discounted cash flow analysis. Upfront CostAnnual CostLength of ContractHi Tech$200000$ 8,0007Low Tech$ 10,000$ 50,0003
You are considering a new product line for your business. The new product line will require investment of $3,000,000 in new equipment. The equipment will be trucked to your facility at a cost of $25,000 and will require another $250,000 to modify that equipment for use in your facility. The new product line will require an increase in inventory of $200,000, an increase in accounts receivable of $100,000, but you believe you will be able to get suppliers to offer good credit terms which should increase accounts payable by $250,000, and you will obtain a short term bank loan, increasing notes payable by $25,000. The equipment falls into the 3- year MACRS class (rates of 33%, 45%, 15%, and 7% in years 1-4, respectively). You expect to operate the new product line for only three years and then shut down operations. The salvage value of the equipment at time three is expected to be $385,000. The new product line is expected to lead to sales of $1.4 million the first year with inflation of…

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