Intermediate Financial Management (MindTap Course List)
Intermediate Financial Management (MindTap Course List)
13th Edition
ISBN: 9781337395083
Author: Eugene F. Brigham, Phillip R. Daves
Publisher: Cengage Learning
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Chapter 13, Problem 1MC

a)

Summary Introduction

Case summary:

Company S considering adding a new line to its product mix and the production line would be set up in unused space in the main plant. It has installed machinery which generates the incremental sales of $1,250 units per year.

Due to this the sale price and cost prices are increased by 3% and firm’s net working capital would have to rise by an amount equal to 12% of sales revenues.

To discuss: Incremental cash flow and Whether person X should subtract dividends or interest expenses while calculating project cash flows.

b)

Summary Introduction

To discuss: Whether an expenses of $100,000 cost to rehabilitate the production line will be included in the analysis or not.

c)

Summary Introduction

To discuss: Whether plant space could be leased out to another firm at $25,000 per year will be included in the analysis or not.

d)

Summary Introduction

To discuss: Whether plant space could be leased out to another firm at $25,000 per year will be included in the analysis or not.

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