ABC fast food corporation plans to open a new branch in the north west region of...
Fantastic news! We've Found the answer you've been seeking!
Question:
Transcribed Image Text:
ABC fast food corporation plans to open a new branch in the north west region of Calgary. The management is about to evaluate this project's net present value to decide whether or not it should expand. The following table provides 3 cases, 6 different variables, and 2 common variables that affect the project's NPV: Variable names Worst case Base case Best case Initial investment (only at year 0) $120,000 $100,000 $80,000 Increase in net working capital (only at year 1) $7,000 $5,000 $3,000 Unlevered net income at end-of-year 1 $4,000 $9,000 $14,000 Cash flow growth rate 2% 3% 4% Corporate tax rate 45% 40% 35% Cost of capital 10% 8% 6% Capital cost allowance (CCA) rate 5% Project life Perpetual In the calculation of the unlevered net income, the manager do not include every year CCA amount and separately calculates the present value of CCA tax shield. The manager senses that the main uncertainty of this project lies on the part of the unlevered net income at end-of-year 1. It is assumed that the manager uses the base case as the proxy for sensitivity analysis. Conduct the sensitivity analysis on the unlevered net income at end-of-year 1. ABC fast food corporation plans to open a new branch in the north west region of Calgary. The management is about to evaluate this project's net present value to decide whether or not it should expand. The following table provides 3 cases, 6 different variables, and 2 common variables that affect the project's NPV: Variable names Worst case Base case Best case Initial investment (only at year 0) $120,000 $100,000 $80,000 Increase in net working capital (only at year 1) $7,000 $5,000 $3,000 Unlevered net income at end-of-year 1 $4,000 $9,000 $14,000 Cash flow growth rate 2% 3% 4% Corporate tax rate 45% 40% 35% Cost of capital 10% 8% 6% Capital cost allowance (CCA) rate 5% Project life Perpetual In the calculation of the unlevered net income, the manager do not include every year CCA amount and separately calculates the present value of CCA tax shield. The manager senses that the main uncertainty of this project lies on the part of the unlevered net income at end-of-year 1. It is assumed that the manager uses the base case as the proxy for sensitivity analysis. Conduct the sensitivity analysis on the unlevered net income at end-of-year 1.
Expert Answer:
Answer rating: 100% (QA)
A D F G 1 2 100000 5000 9000 3 Initial Investment 4 NWC Net income Net Income NP... View the full answer
Related Book For
Posted Date:
Students also viewed these accounting questions
-
The Cupcake Factory plans to open a new retail store in Medina, Ohio. The Cupcake Factory will sell specialty cupcakes for $5 per cupcake (each cupcake has a variable cost of $2.) The company is...
-
The Cupcake Factory plans to open a new retail store in Austin, Texas. The store will sell specialty cupcakes for $6 per cupcake (each cupcake has a variable cost of $3). The company is negotiating...
-
The Candle Company plans to open a new retail store in Forest Lake, Minnesota. The Candle Company will sell specialty candles for an average of $20 each. The average variable costs per candle are as...
-
2. Imagine a college basketball team has the following supply and demand figures for a typical game: Price 8 16 24 32 40 Quantity Demanded 28000 22000 16000 10000 4000 Quantity Supplied 16000 16000...
-
Weights of pieces of tile made in Arizona in April 2007 (in ounces) are as follows: 2.5, 2.66, 2.8, 2.3, 2.5, 2.33, 2.41, 2.88, 2.54, 2.11, 2.26, 2.3, 2.41, 2.44, 2.17, 2.52, 2.55, 2.38, 2.89, 2.9,...
-
When heated with an acidic solution of sodium dichromate, compound A forms benzoic acid. Identify compound A from its 1H NMR spectrum. 6 (ppm)
-
The data in Exercise 2.174. Use technology to find the correlation for the data indicated. Data From Exercise 2.174: Make a scatterplot of the data. Put the $X$ variable on the horizontal axis and...
-
The annual reports of Milano SpA, an Italian clothing chain, included the following selected data (in millions): During each of the three years, 10 million shares of common stock were outstanding....
-
Question 1 of 42\ Use the following T-Account for "Income Taxes Payable," a liability for income tax that a company owes to the government, to solve for how much the company paid in cash taxes over...
-
The operations manager at Sebago Manufacturing is considering three proposals for supplying a critical component for its new line of electric watercraft. Proposal one is to purchase the component,...
-
Thornton Company produces commercial gardening equipment. Since production is highly automated, the company allocates its overhead costs to product lines using activity-based costing. The costs and...
-
Politicians who express concern about the national debt or balancing the budget often rely on analogies of personal or household finances. According to Wray, Kelton, Molser, etc., these analogies...
-
Should a Web site be considered a form of property? In what ways should it be treated differently from physical property?
-
Based on the topic you choose, you need to develop your own thesis and then explore that thesis in a critical way in your essay. Topic: 1) Define what virtue is according to Aristotle. How many types...
-
Take the following data table and calculate the Real Value when the Base value is set at 2009. Please show your work for partial credit. Note: Use 4 Digit Decimal Precision When Re-Indexing CPI. Year...
-
Critically analyse the impact of China's trade surplus on global trade and determine the implications of this for countries such as South Africa.
-
The following chemical reactions take place in a closed system: 2A + 2B C The equilibrium constants are: Initial conditions: A + 2D C K = 5 x 10-4 K = 5 x 10- Ca,o= 50 Cb,0 = 40 CC,0 = 5 Cd,o= 10...
-
Before the 1973 oil embargo and subsequent increases in the price of crude oil, gasoline usage in the United States had grown at a seasonally adjusted rate of 0.57 percent per month, with a standard...
-
1. Pressure to become more sustainable can usually be categorized into several reasons, including cost reduction and regulatory compliance. Think of an organization you're familiar with. Which...
-
Select an industry you are interested in and select three companies within that industry. Obtain their annual reports by going to each companys website and downloading the report for the most recent...
-
Select a company you are interested in and obtain its annual reports by going to the companys website. Download the annual report for the most recent year. (On many companies websites, you will need...
-
On June 24, 2015, two grocery retailers, Netherlandsbased Ahold and Belgium-based Delhaize, announced their intention to engage in a merger of equals. By merging their activities, the two companies...
-
GlaxoSmithKline is one of the largest pharmaceutical firms in the world, and over an extended period of time in the recent past, it consistently earned higher ROEs than the pharmaceutical industry as...
-
An analyst claims, It is not worth my time to develop detailed forecasts of revenue growth, profit margins, etcetera, to make earnings projections. I can be almost as accurate, at virtually no cost,...
Study smarter with the SolutionInn App