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 5,000.
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.