Suppose you are a defense financial consultant
Electronics, Inc., a large public company, is
Market leader, market share company in Radar Detection Systems (RDS)
Do you want to establish a production facility in another country?
A brand new set of RDS. It will take five years to complete the project. company
He bought the land for $4.2 million three years ago
It was originally intended for toxic waste disposal but was used in construction
Instead, piping systems are used to safely handle chemicals. nation
Last week, it was estimated at $5 million after taxes. The additional tax will be paid within five years.
While the property has an estimated value of $5.4 million, the company plans to sell it.
Reserve the land as a reserve for another project. Companies want to establish themselves.
A new production facility will be built on the property. The facility and its equipment will
The construction cost was $31.76 million. The following market data on DEI
Current Securities: Bonds 227,000 7.4% Coupon Bonds
Excellent, 25 years mature. Sold for 109% of face value
Each bond has a face value of $1,000 and is repaid semiannually.
Payment. 8,500,000 common shares sold at
Shares at $70.70; Beta: 1.2 Top Pick: 447,000 shares
The remaining 6% of the preferred stock is sold at $80.70
Percentage and $100 par market: 8%
Expected market risk premium; 6% interest rate, which is risk-free DEI
GM Wharton is his primary insurance company. Wharton calculates DEI spread
New common issue: 9%, new preferred issue: 7%
5% on equity issuance and new debt. wharton is
All direct and indirect costs of the exhibition (except his
profit) when setting these spreads. Wharton advises DEI
It raised the funds needed to build the factory by issuing new bonds
shares of common stock. The tax rate for DEI is 38%. this project
An initial net working capital investment of $1,225,000 is required
put into service. Fundraiser: Accepted, Wharton School of Business
External. One. Compute the project’s initial cash flow at time 0,
All side effects must be considered. Consider the possibility that your network is running.
No capital is required to pay for the IPO. (Negative numbers should be
A minus sign indicates this. Intermediaries should not round
(e.g. 1,234,567). ) cash flow $ b. What is the new RDS item
This facility makes it riskier than other DEI projects.
It’s not in the US. Your manager instructs you to use the
3% adjustment factor to reflect this higher amount
risk. Find the best discount rate to use
Evaluation of DEI projects. Do not round subtotals.
Your answer can be given as a percentage, rounded to two decimal places (e.g.
The tax period is eight years, and DEI applies linear deduction. exist
Project end, also known as Year 5 end, is the point at which plant and equipment are decommissioned.
You can scrap equipment for as little as $4.2 million. How much after tax?
What is the residual value of the equipment or facility? not round
between calculations. Do not enter US dollars.
Millions of dollars, such as 1,234,567. After-tax residual value $
The company incurs costs of $6,000,000 per year. plan
15,500 RDS are produced per year and sold for $10,650 each
machines; variable production costs of $9,250 per RDS. what does that mean?
The project’s annual operating cash flow (OCF). (don’t want
Rounded Interim Calculations Do not enter results in US dollars.
Millions of dollars, such as 1,234,567. Operating Cash Flow $
Auditors of the DEI are primarily interested in the impact of the DEI
Investments reported under the balance sheet
You’ll tell her what the accounting break-even point is.
RDS is sold to this project (do not round intermediate calculations
Round your answers to the nearest whole number.
Break-Even Unit of Measure f. Finally, the DEI President wants you to
Enter all your assumptions, calculations and other information
This is the report the CFO needs.
What is the internal rate of return (IRR) and net rate of return for RDS projects
present value (NPV). Let’s assume the net working capital (NPV) will be.
No exchange fees are required. Enter your NPV in US dollars.
Millions of dollars (e.g. 1,234,567). Please enter your IRR number as
percentage. Do not round intermediate numbers. round yours up
Final answer rounded to two decimal places (e.g. 32.16). Internal rate of return % $NPV
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