Given this scenario, determine and map out the relevant cash flows for capital budgeting. Then use Excel to build your spreadsheet for the 10-year calculations, and after developing your estimates of each year's cash flow under the two scenarios, use the NPV method to determine what decision the company should make regarding the factory. Assume a 9% cost of capital. Explain your answer, and turn in the spreadsheet detailing your calculations.
As per the case study it is more profitable to stay at San Francisco CA, although company has to face bit challange yet the profitability is more at CA.
Fascination Tool and Die began development for a new factory in the area around San Francisco,...
Golden Gate Construction Associates, a real estate developer and building contractor in San Francisco, has two sources of long-term capital: debt and equity. The cost to Golden Gate of issuing debt is the after-tax cost of the interest payments on the debt, taking into account the fact that the interest payments are tax deductible. The cost of Golden Gate's equity capital is the investment opportunity rate of Golden Gate's investors, that is, the rate they could earn on investments of...
Golden Gate Construction Associates, a real estate developer and building contractor in San Francisco, has two sources of long-term capital: debt and equity. The cost to Golden Gate of issuing debt is the after-tax cost of the interest payments on the debt, taking into account the fact that the interest payments are tax deductible. The cost of Golden Gate's equity capital is the investment opportunity rate of Golden Gate's investors, that is, the rate they could earn on investments of...
We have the opportunity to building a new manufacturing facility which will reduce our annual cost of production for 50 million pounds of fertilizer from $1.00/lb. to $.70/lb. The life of the new plant will be 20 years. The engineering firm we have hired estimates the cost to build the plant at $80 million, all to be spent in the current year. The contract with the plant construction company limits the maximum cost to the engineering firm estimate plus 10%....
The WeDream Company has spent $10 million, a big sunk cost, in research and development, and has successfully invented a new electronic device. It is thinking of building a plant to produce this new device. The plant and equipment will cost $5 million. It will last for ten years and will have no salvage value at the end of that time.The land the plant will be built on could be rented out for $300,000 per year before taxes for the...
1) Your company, International Widget Manufacturers, is headquartered in New Orleans, but is considering expanding its operations to the west coast. It will cost $10 million to build a plant in California to make widgets, but if you do, you will be able to sell 1.5 million widgets per year for the next ten years. The project ends at that time. During the first year, your widgets will be priced at $1.00 each. They will cost 30 cents each to...
Imagine you work for a real estate developer. Three years ago, the developer spent $50 million on a plot of land, which is now valued at $60 million. However, the building project has been held up in red tape until now, and the company has paid $3 million in interest on its initial loans. Three years ago they thought they could build 100 condos for a total of $30 million and sell them for a total of $100 million. Now,...
Assignment 1: Memo to Management You are working in the finance department of Space Sky Flight Ltd (SSF). The Company has spent $6.5 million in research and development over the past 12 months developing a drone capable to fix satellites to compete in the space industry. SSF’s directors now need to choose between three options for bringing this product to the market. These options are: Option A: Manufacturing the product “in-house” and selling directly to the market Your task Your...
Exhibit 1: Sales and Cost Forecast The sales forecast is based on projected levels of demand. All the numbers are expressed in today’s dollars. The forecasted average inflation per year is 3.0% Price per bus $220,000 Units sold per year 11,000 Labor cost per bus $50,000 Components & Parts per bus $95,000 Selling General & Administrative (fixed) $250,000,000 NOTE: Average warranty cost per year per bus for the first five years is $1,000. The present value of this cost will...
ROI, Residual Income Raddington Industries produces tool and die machinery for manufacturers. The company expanded vertically in 20x1 by acquiring one of its suppliers of alloy steel plates, Keimer Steel Company. To manage the two separate businesses, the operations of Keimer are reported separately as an investment center. Raddington monitors its divisions on the basis of both unit contribution and return on average investment (ROI), with investment defined as average operating assets employed. Management bonuses are determined on ROI. All...
4) Franco’s athletic club is planning an expansion. The owner is either going to build a completely new building or just add on to the existing facility. A new building will cost $10 million, but it is expected to increase revenues by $2 million (before taxes) per year for ten years. An add-on to the current facility will only cost $500,000, but projections are that it will lead to an increase in revenues of only $150,000 (before taxes) per year...