Capital Budgeting Practical Problem
$10-30 AUD
Paid on delivery
2. Chill Mount Creamery manufactures a variety of Ice creams. The company is considering introducing a new product (Yugo cream). The company’s manager has been provided with the following information by their business analyst.
● The project has an anticipated economic life of 5 years.
●The Company plans to spend $1,300,000 on advertising campaign to boost sales.
●The Company’s interest expense each year will be $500,000.
● The Company is required to purchase a new machine to produce the new product. The machine’s initial cost is $5,500,000. The machine will be depreciated on a straight – line basis over 5 years. The Company anticipates that the machine will last for 10 years; the salvage value after 5 years is $500,000.
● Six months ago the Company also paid $300,000 to a firm to do research regarding new product.
● If the Company goes ahead with the new product, it will have an effect on the Company’s net operating capital. The forecasted net working capital will be $200,000 (at time zero)
● The new product is expected to generate sales revenue of $1,500,000, 2,500,000, 3,500,000, 4500,000 and 5,500,000 in year 1, 2, 3, 4 and 5 respectively. Each year the operating cost (not including depreciation) expected to equal 30 percent of sales revenue.
● In addition the Company expects with introduction of new product, sale of other ice cream increase by $500,000 after taxes each year.
● The Company’s overall WACC is 7.5 percent. However, the proposed project is riskier than the average project; the new project’s WACC is estimated to be 10 percent.
● The Company’s tax rate is 30 percent.
● What is the net present value, internal rate of return, payback period, discounted payback period, and profitability index of the proposed project. Based on your analysis should the project be accepted? Discuss.
Project ID: #6317319
About the project
27 freelancers are bidding on average $71 for this job
I am a professional full time academic research writer fully proficient in HARVARD, APA, MLA, Chicago and Oxford writing styles. I am competent in writing dissertations, thesis, reports, case studies, personal developm More
I am a competent academic writer, with high lead times and turnaround time, proposal writer, masters level dissertation writer, PHD level dissertation and thesis writer, PHD defense PowerPoint presentation writer, ar More
Hello Chartered Accountant and Associate Chartered Certified Accountant specialist in Finance is available for you deliver the accurate results and give you high grades looking forward to discuss Thanks
Hey there! I am a student of business finance decisions and am adept at investment appraisals. I can accurately do this. Awaiting your response.
I am a Financial and Statistical Research Analyst. As a analyst my spectrum of work includes valuation of any financial products (stocks, debt securities etc), corporate project and prepare a report based on analysis.I More
Dear Sir, I am a Chartered Accountant final from India. Also i am a CFA level 1 from USA. As a finance student i have very sound knowledge of Capital Budgeting. I will provide you the solution of this problem in just More
I am a CIMA qualified accountant with a Masters Degree and having over 10 years' working experience in both financial and management accounting. I have attended this sort of investment appraisals very often in my ex More
i'm professional management accountant and easily solve this problem in few hour. it is very easy task. If you want to be effective and efficient work within committed time so accept my proposal for best result. T More
Hi. this is an easy project , i am from commerce background working with work experience with finance background ..for more details you can get in touch with me
Hi, I am a professional accountant. I can do this very easily. Award the project with milestone. I am eagerly awaiting for your response. Thanks & best regards, MRahman
This question is easy.. Don't waste your money.. Hi.. please have a quick conversation. i could do this job within 2 hours.. please check out my portfolio... and my bid is on your budget.. thank you