You have been hired as a consultant for Pristine Urban-Tech Zither, Incorporated (PUTZ), manufacturers of fine zithers. The market for zithers is growing quickly. The company bought some land three years ago for $2.55 million in anticipation of using it as a toxic waste dump site but has recently hired another company to handle all toxic materials. Based on a recent appraisal, the company believes it could sell the land for $2.75 million on an aftertax basis. In four years, the land could be sold for $2.95 million after taxes. The company also hired a marketing firm to analyze the zither market, at a cost of $305,000. An excerpt of the marketing report is as follows:
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- You are a manager at Percolated Fiber, which is considering expanding its operations in synthetic fiber manufacturing. Your boss comes into your office, drops a consultant's report on your desk, and complains, "We owe these consultants $1.9 million for this report, and I am not sure their analysis makes sense. Before we spend the $18 million on new equipment needed for this project, look it over and give me your opinion." You open the report and find the following estimates (in millions of dollars): (Click on the following icon in order to copy its contents into a spreadsheet.) Sales revenue - Cost of goods sold = Gross profit - General, sales, and administrative expenses - Depreciation = Net operating income - Income tax 1 34.000 20.400 13.600 1.440 1.800 10.360 2.072 Project Year 2 34.000 20.400 13.600 1.440 1.800 10.360 2.072 9 34.000 20.400 13.600 1.440 1.800 10.360 2.072 10 34.000 20.400 13.600 1.440 1.800 10.360 2.072 a. Given the available information, what are the free cash…You are a manager at Percolated Fiber, which is considering expanding its operations in synthetic fiber manufacturing. Your boss comes into your office, drops a consultant's report on your desk, and complains, "We owe these consultants $1.2 million for this report, and I am not sure their analysis makes sense. Before we spend the $29 million on new equipment needed for this project, look it over and give me your opinion." You open the report and find the following estimates (in millions of dollars): (Click on the following icon in order to copy its contents into a spreadsheet.) Project Year Sales revenue Cost of goods sold = Gross profit - General, sales, and administrative expenses - Depreciation = Net operating income - Income tax 1 25.000 15.000 10.000 2.320 2.900 4.780 1.434 2 25.000 15.000 10.000 2.320 2.900 4.780 1.434 9 25.000 15.000 10.000 2.320 2.900 4.780 1.434 10 25.000 15.000 10.000 2.320 2.900 4.780 1.434 a. Given the available information, what are the free cash flows in…A few years ago, Nuts, Bolts and Brackets, Inc purchased a small warehouse. The firm paid $2.200,000 for the warehouse and $300,000 for construction costs at that time. The owner. "Thunder Dan," (as the locals call him), decides if he wants to expand, he will need more space. He decides to expand the size of the current warehouse. This expansion will cost him about $400,000 to construct a new side to the building. Using the additional space wisely, Dan estimates that he will be able to generate about $70,000 more in sales per year, while incurring $41,500 in labor and variable costs of goods Calculate the amount of the Net Capital Expenditure (NCS) on the project below. Multiple Choice -$2,200,000 -230,000 -$370,000 -$400,000 $271,500 -$70,000
- DuPree Coffee Roasters, Inc., wishes to expand and modernize its facilities. The installed cost of a proposed computer-controlled automatic-feed roaster will be $135,000. The firm has a chance to sell its 5-year-old roaster for $34,000. The existing roaster originally cost $60,500 and was being depreciated using MACRS and a 7-year recovery period (see the table attached). DuPree is subject to a 21% tax rate. a. What is the book value of the existing roaster? b. Calculate the after-tax proceeds of the sale of the existing roaster. c. Calculate the change in net working capital using the following figures: Anticipated Changes in Current Assets and Current Liabilities Accruals −$19,500 Inventory +50,000 Accounts payable +40,900 Accounts receivable +70,200 Cash 0 Notes payable +14,400Oman Chips company have noticed that the demand of their products increased in last few quarters. The company has decided to establish one production facility in Dhank, which will not only cover the demand of Al Dhahira region but also Al Buriami and some parts of Al Dakhiliya. The company purchased a land by using a significant amount and started constructing building and brought plant and machinery. During this whole process, one day they received a letter from public prosecution that this land is controversial and nothing can be done here. Now the case is in high court and it is expected that the company may lose this case. Now it is the responsibility of the company to _____________________. a. Disclose this issue in the annual meeting to come up with more ideas b. Disclose this information as it has a major impact on the balance sheet c. Show all information in their upcoming journal so that investor can get ideas d. None of the optionsYou are a manager at Northern Fibre, which is considering expanding its operations in synthetic fibre manufacturing. Your boss comes into your office, drops a consultant's report on your desk, and complains, "We owe these consultants $1.6 million for this report, and I am not sure their analysis makes sense. Before we spend the $29 million on new equipment needed for this project, look it over and give me your opinion." You open the report and find the following estimates (in millions of dollars): Sales revenue -Cost of goods sold = Gross profit - General, sales, and administrative expenses -Depreciation = Net operating income -Income tax = Net income 1 2 32.000 32.000 19.200 19.200 12.800 12.800 2.320 2.900 2.320 2.900 7.580 7.580 2.653 2.653 4.927 4.927 ... 9 32.000 19.200 12.800 2.320 2.900 7.580 2.653 4.927 10 32.000 19.200 12.800 2.320 2.900 7.580 2.653 4.927 a. Given the available information, what are the free cash flows in years 0 through 10 that should be used to evaluate the…
- Allied Food Products is considering expanding into the fruit juice business with a new fresh lemon juiceproduct. Assume that you were recently hired as assistant to the director of capital budgeting, and youmust evaluate the new project.The lemon juice would be produced in an unused building adjacent to Allied’s Fort Myers plant; Alliedowns the building, which is fully depreciated. The required equipment would cost $450,000, plus anadditional $38,000 for shipping and installation. In addition, inventories would rise by $40,000, whileaccounts payable would increase by $10,000. All of these costs would be incurred at t = 0. By a specialruling, the machinery could be depreciated under the MACRS system as 4-year property. The applicabledepreciation rates are 40%, 30%, 20%, and 10%.The project is expected to operate for 4 years, at which time it will be terminated. The cash inflows areassumed to begin 1 year after the project is undertaken (t = 1), and to continue out to t = 4. At the endof…You are a manager at Percolated Fiber, which is considering expanding its operations in synthetic fiber manufacturing. Your boss comes into your office, drops a consultant's report on your desk, and complains, "We owe these consultants $1.4 million for this report, and I am not sure their analysis makes sense. Before we spend the $28 million on new equipment needed for this project, look it over and give me your opinion." You open the report and find the following estimates (in millions of dollars): (Click on the following icon in order to copy its contents into a spreadsheet.) Project Year Sales revenue - Cost of goods sold = Gross profit - General, sales, and administrative expenses - Depreciation = Net operating income - Income tax 1 31.000 18.600 12.400 2.240 2.800 7.360 1.472 2 31.000 18.600 12.400 2.240 2.800 7.360 1.472 9 31.000 18.600 12.400 2.240 2.800 7.360 1.472 10 31.000 18.600 12.400 2.240 2.800 7.360 1.472 a. Given the available information, what are the free cash flows…You are a manager at Northern Fibre, which is considering expanding its operations in synthetic fibre manufacturing. Your boss comes into your office, drops a consultant's report on your desk, and complains, "We owe these consultants $1.5 million for this report, and I am not sure their analysis makes sense. Before we spend the $17 million on new equipment needed for this project, look it over and give me your opinion." You open the report and find the following estimates (in millions of dollars): Sales revenue - Cost of goods sold = Gross profit - General, sales, and administrative expenses - Depreciation = Net operating income 1 2 28.000 28.000 16.800 16.800 11.200 11.200 1.360 1.360 1.700 1.700 8.1400 8.1400 9 28.000 16.800 11.200 1.360 1.700 8.1400 10 28.000 16.800 11.200 1.360 1.700 8.1400 b. If the cost of capital for this project is 9%, what is your estimate of the value of the new project? Value of project = $ million (Round to three decimal places.)
- You are a manager at Northern Fibre, which is considering expanding its operations in synthetic fibre manufacturing. Your boss comes into your office, drops a consultant's report on your desk, and complains, "We owe these consultants $1.6 million for this report, and I am not sure their analysis makes sense. Before we spend the $23 million on new equipment needed for this project, look it over and give me your opinion." You open the report and find the following estimates (in millions of dollars): Sales revenue - Cost of goods sold = Gross profit - General, sales, and administrative expenses - Depreciation = Net operating income - Income tax = Net income 1 2 34.000 34.000 20.400 20.400 1.840 13.600 13.600 1.840 2.300 9.4600 3.311 2.300 6.149 9.4600 3.311 6.149 9 10 34.000 34.000 20.400 20.400 13.600 13.600 1.840 1.840 2.300 2.300 9.4600 3.311 6.149 9.4600 3.311 6.149 b. If the cost of capital for this project is 10%, what is your estimate of the value of the new project? Value of…The president of your company, MorChuck Enterprises, 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 $70,000, 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 $30,000. The MACRS rates for the first three years are 0.3333, 0.4445, and 0.1481. Use of the equipment would require an increase in net working capital (spare parts inventory) of $4,000. The machine would have no effect on revenues, but it is expected to save the firm $25,000 per year in before-tax operating costs, mainly labor. The firm’s marginal federal-plus-state tax rate is 25%. a. What is the Year-0 cash flow? b. What are the cash flows in Years 1, 2, and 3? c. What is the additional (nonoperating) cash flow in Year 3? d. If the project’s cost of capital is 10%, should the chromatograph be purchased?You are a manager at Northern Fibre, which is considering expanding its operations in synthetic fibre manufacturing. Your boss comes into your office, drops a consultant's report on your desk, and complains, "We owe these consultants $1.5 million for this report, and I am not sure their analysis makes sense. Before we spend the $15 million on new equipment needed for this project, look it over and give me your opinion." You open the report and find the following estimates (in millions of dollars): 1 2 19 10 Sales revenue 25.000 25.000 25.000 25.000 -Cost of goods sold 15.000 15.000 15.000 15.000 = Gross profit 10.000 10.000 10.000 10.000 - General, sales, and administrative expenses 1.200 1.200 1.200 1.200 - Depreciation 1.500 1.500 1.500 1.500 = Net operating income 7.3000 7.3000 7.3000 7.3000 - Income tax 2.555 2.555 2.555 2.555 b. If the cost of capital for this project is 14%, what is your estimate of the value of the new project? Value of project = $million (Round to three decimal…