Assignment: Financial Management Essay
A proposed new investment has projected sales of $750,000. Variable costs are 55 percent of sales, and fixed costs are $1 64,000; depreciation is $65,000. Prepare a pro formal income statement assuming a tax rate of 35 percent. What is the projected net income? 2 Keeper, Inc. , is considering a new three-year expansion project that requires an initial fixed asset investment of $2. 7 million. The fixed asset will be depreciated straight-line to zero over its three-year tax life, after which time it will be rootless.
The project is estimated to generate in annual sales, with costs of $775,000. If the tax rate is 35 percent, what is the ICE for this year? 3 Your firm is contemplating the purchase of a new $580,000 computer-based order entry system. The system will be depreciated straight-line to zero over its five-year life. It will be worth $60,000 at the end of that time. You will save $210,000 before taxes per year in order processing costs, and you will be able to reduce working capital by $75,000 (this is a one-time reduction).
If the tax rate is 5% percent, what is the AIR for this project? 4 Olin Transmissions, Inc. , has the following estimates for its new gear assembly project: price=$l ,400 per unit; variable costs=$220 per unit; fixed costs=$3. 9 million; units. Suppose the company believes all of its estimates are accurate only to within В±15 percent. What values should the company use for the four variables given here when it performs its best-case scenario analysis? What about the worst-case scenario? A project has the following estimated data: price=$62 per unit; variable sots=$41 per unit; fixed costs=$1 5,500; required return?12 percent; initial investment-$24,000; life= four year. Ignoring the effect of taxes, what is the accounting break-even quantity? The cash break-even quantity? The financial break-even quantity? What is the degree of operating leverage at the financial break-even level of output? 6 You bought one of Great White Shark Repellent Co. ‘s 8 percent coupon bonds one year ago for $1 ,030.
These bonds make annual payments and mature 14 years from now. Suppose you decide to sell your bonds today, when the required return on the bonds is 7 percent. If the inflation rate was 4. 2 percent over the past year, what was your total real return on investment? 7 Assume that the historical return on large-company stocks is a predictor of the future returns. What return would you estimate for large-company stocks over the next year? The next 5 years? 20 years? 30 years? 8 Read Minimizes of Chapters 10, 11, and 12. Answer the questions at the end of each case.