Assignment Type: Individual Project Due Date: 9/17/2005
Points Possible: 125 Project Duration: will vary
Deliverable Length: 1-2 pages
Superior Manufacturing is thinking of launching a new product. The
company expects to sell $950,000 of the new product in the first year
and $1,500,000 each year thereafter. Direct costs including labor and
materials will be 55% of sales. Indirect incremental costs are
estimated at $80,000 a year. The project requires a new plant that
will cost a total of $1,000,000, which will be depreciated straight
line over the next five years. The new line will also require an
additional net investment in inventory and receivables in the amount
of $200,000. Assume there is no need for additional investment in
building and land for the project. The firm's marginal tax rate is
35%, and its cost of capital is 10%. Based on this information you
are to complete the following tasks.
Prepare a statement showing the incremental cash flows for this
project over an 8-year period.
Calculate the Payback Period (P/B) and the NPV for the project.
Based on your answer for question 2, do you think the project should
be accepted? Why? Assume Superior has a P/B (payback) policy of not
accepting projects with life of over three years.
If the project required additional investment in land and building,
how would this affect your decision? Explain.
A resource on financial functions in Excel is available in the Labs
area. Click "Labs," then "Student Success Learning Lab." Click
"Presentation Material" in the left navigation bar. Choose "Financial
Functions" to download the file. When asked, be sure to click "Save,"
rather than "Open."
To receive full credit on this assignment, please show all work,
including formulae and calculations used to arrive at financial
values. Submit your work to your instructor via the drop box. |
