FPS would provide only marketing, sales, and distribution for natural gas pipeline valves. Piscataway would have to
Fantastic news! We've Found the answer you've been seeking!
Question:
FPS would provide only marketing, sales, and distribution for natural gas pipeline valves. | |||||||||||
Piscataway would have to invest in faciliites to manufacture the valves, spending | $7,465 | in Year 0 | |||||||||
Piscataway would have to invest in faciliites to manufacture the valves, manufacture the valves themselves, and incur administrative expenses. | |||||||||||
Total cash-out fllow for these are as shown below. | |||||||||||
($s in 000s) | |||||||||||
Year | 1 | 2 | 3 | 4 | 5 | 6 | 7 | 8 | 9 | 10 | |
Cash-In Flow (Payments from Customers) | $3,700 | $7,515 | $12,515 | $18,375 | $23,810 | $25,305 | $27,175 | $36,875 | $37,825 | $37,900 | |
Total Cash Outflow | $2,750 | $5,045 | $8,135 | $11,025 | $14,285 | $14,920 | $14,945 | $20,280 | $20,800 | $20,815 | |
In addition, FPS would receive an annual fee of | 12% | of payments to customers to compensate them for marketing. | |||||||||
These payments are not included in the Total Cash Flow above. | |||||||||||
Piscataway's CFO has decided to use a required rate of return of | 20% | to evalaute the FPS proposal. | |||||||||
(i) What would be Piscataway's net operating cash flow if they choose FPS? | |||||||||||
(ii) What major risk factors might have gone into the CFO's choice of the above required rate of return? | |||||||||||
(ii) What is the net present value of the FPS proposal? | |||||||||||
Related Book For
Linear Algebra And Its Applications
ISBN: 9781292351216
6th Global Edition
Authors: David Lay, Steven Lay, Judi McDonald
Posted Date: