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ACG 2071 †Comprehensive Problem IVWhen submitting the completed project please show all work and number eachanswer accordingly When calculating the NPV use the following five columns use for ALL

ACG 2071 – Comprehensive Problem IVWhen submitting the completed project, please show all work and number eachanswer accordingly.When calculating the NPV use the following five columns (use for ALL NPV calculations):ItemYear(s)Cash FlowDiscountFactorPresent Valueof Cash Flows1. Tony Skateboards is considering building a new plant. James Bott, the company’s marketingmanager, is an enthusiastic supporter of the new plant. Michele Martinez, the company’s chieffinancial officer, is not so sure that the plant is a good idea. Currently the company purchases itsskateboards from foreign manufacturers. The following figures ere estimated regarding theconstruction of the new plant.Cost of plantAnnual cash inflowsAnnual cashoutflows$4,000,000.00$4,000,000.00$3,550,000.00Estimated usefullifeSalvage value15 years$2,000,000.00Discount rate11%James Bott believes that these figures understate the true potential value of the plant. He suggests thatby manufacturing its own skateboards the company will benefit from a “buy American” patriotismthat he believes is common among skateboarders. He also notes that the firm has had numerousquality control problems with the skateboards manufactured by its suppliers. He suggests that theinconsistent quality has resulted in lost sales, increased warranty claims, and some costly lawsuits.Overall, he believes sales will be $200,000 higher than the projected above, and that the savings fromlower warranty costs and legal costs will be $80,000 per year.Required:a. Compute the Cash Payback period for the project based on the original projections.b. Compute the net present value of the project based on the original projections.c. Compute the Cash Payback period for the project incorporating James’ estimates of the value ofthe intangible benefits.d. Compute the net present value of the project incorporating James’ estimates of the value of theintangible benefits.e. Comment on your findings.12. The partnership of Michele and Mark is considering the following long-term capital investmentproposal. Relevant data on the project is listed below. Salvage value is expected to be zero for theproject. Depreciation is computed by the straight-line method. The company’s rate of return is thecompany’s cost of capital which 12%.CapitalInvestmentBrown$200,000.00Annual NetIncome:Year 1Year 2Year 3Year 4Year 5Total$25,000.00$16,000.00$13,000.00$10,000.00$8,000.00$72,000.00Required:a. Compute the cash payback period for the project. (round to two decimal places)b. Compute the net present value for the project (round to the nearest dollar)c. Compute the annual rate of return for the project.d. Compute the profitability index for the project.2

 

May 21 2020 View more View Less

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