You are planning to manufacture a new cordless induction food processor. As this isnew technology, it will cost you $4 million to develop and you plan to manufacture forthree years (3Y straight line depreciation). Due to the rapidly changing nature ofinduction technology you do not wish to plan any more than three years ahead.Competition is fierce and you have estimated your annual expenses and sales etc asper the following with estimates for changes in good or bad scenarios.a. Market sizeb. Market shareUnit Price70,000 ± 7%0.30 ± 10%$500 ± 5%c.d. Variable c.p.u.28%e. Fixed costsf. TaxesYour cost of capital is 6%.$270 ± 12%$400,000 ± 13%Create a table of estimated and pessimistic values for each element. What is thethree-year NPV of the project with all values pessimistic? Do you think that thisshould go ahead and why?

Step 1: Annual Sales = Market size * Market share = 65,100 * 0.27 = 17,577 units Annual Revenue =…

Answered: You are planning to manufacture a new…

Essentials Of Investments

11th Edition

ISBN:9781260013924

Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Chapter1: Investments: Background And Issues

Section: Chapter Questions

Problem 1PS

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A distribution company is considering three different alternatives to satisfy their customer's demands. Their options are to rent a ready distribution center (D01), Rent and mobilize a center (D02), or outsourcing (OS). The estimate for each method is shown. The lifetime for D01, D02, and OS are 3, 6, and 2 respectively. MARR is 0.04 per year. and the percentage of change for all of the cases are 0 % Note: all units are in thousand $ D01 D02 OS First Cost, $ -136 -973 0 Annual Operation Cost,$ -92 -59 -123 Salvage Value,$ 28 333 0 a: Calculate the Fw of D01? b) Calculate FW for D02 c )What is the FW for outsourcing? d: Which alternative will be selected? f: Draw the cash flow for all of these three alternatives. If contract value with subcontractor increases by 15 % every year calculate FW for Outsourcing. Is there any change in your previous decision on the basis of the new condition? If yes, which…
What is the OCF?
3
A fast food restaurant feels they could increase their profits by introducing ice cream. The equipment will cost $250,000 and has expected profits of $125,000 in the 1st year, $100,000 in the 2nd year, and $60,000 in the 3rd year. It could sell the equipment for scrap at the end of 3 years for $10,000. a. If the company's required rate of return is 12% compounded annually, what is the Net Present Value (NPV) of this investment? b. Is the investment worth while?
None
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Assume that you are thinking about starting your own small business. You have made the following estimates regarding this opportunity: You can rent a location for your business at a cost of $36, 000 per year. The equipment costs incurred to start the business would total $250,000. The equipment would have a 5-year useful life and a salvage value of S 25,000. Your company's estimated sales per year would equal $350,000 and its variable cost of goods sold would be 30% of sales. Other operating costs would include $56, 000 per year in salaries, S4, 000 per year for insurance, $25, 000 per year for utilities, and a 3% sales commission. The payback period for this investment opportunity is closest to: Multiple Choice 4.08 years, 2.20 years. 3.80 years. 3.08 years.
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1. Marginal Cost-Benefit Analysis As a financial analyst for Longview Products Company, you have been asked to evaluate a proposal for new, more efficient manufacturing equipment. The existing equipment will produce benefits over the next five years of $780,000 in today's dollars. The proposed new equipment will produce benefits of $970,000 in today's dollars over the same period. The installed cost of the new equipment is $300,000; the old equipment can be sold for $130,000. Apply marginal cost-benefit analysis to determine: a. The marginal benefits of the new equipment b. The marginal costs of the new equipment c. The net benefit of the new equipment d. Based on your calculations, what do you recommend? Why? e. What factors other than the costs and benefits should be considered before the final decision is made? 2. Interest verens Dividend Exnence
Assume that you are thinking about starting your own small business. You have made the following estimates regarding this opportunity: • You can rent a location for your business at a cost of $36,000 per year. The equipment costs incurred to start the business would total $250,000. The equipment would have a 5-year useful life and a salvage value of $25,000 Your company's estimated sales per year would equal $350,000 and its variable cost of goods sold would be 30% of sales. • Other operating costs would include $58,000 per year in salaries, $4,000 per year for insurance, $25,000 per year for utilities, and a 3% sales commission The simple rate of return for this investment opportunity is closest to: Multiple Choice 22.0% 19.0% 26.6% 15.7%
A manufacturer of automated optical inspection devices is deciding on a project to increase the productivity of the manufacturing processes. The estimated costs for the two feasible alternatives being compared are shown below. Use the internal rate of return (IRR) method to determine which alternative should be selected if the analysis period is 8 years and the company's MARR is 4% per year. Alternative M N Initial costs $30,000 $45,000 Net annual cash flow $4,500 $7,000 Life in years 8 8 (a) IRR of base alternative = (b) IRR of incremental cash flow = (c) Choose Alternative
A seaI firm Trodent’s customers expects to decrease downtime by 0.3 as a result of the new seal design. If Iost production would have cost the company $110,000 per year for the next four years, how much could the company afford to spend now on the new seals, if it uses an interest rate of 0,1 2 per year?

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