A company is considering whether to launch a new product. A consulting firm was contacted, and...

  
 

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A company is considering whether to launch a new product. A consulting firm was contacted, and after a survey the company is invoiced 250,000 for, the consulting firm presents the following analysis: To produce the product, the company needs fixed assets that cost 1,000,000 and that have 5 years service life. The scrapping value is 0. If the intended expansion is to be implemented the company must increase the capital tied up in working capital. It is estimated that trade receivables will remain 100,000, inventories 90,000 while accounts payable are budgeted at 80,000. I The introduction costs for the new product will be 400,000, and will accrue in year 1. The company's old turnover has been 2,000,000. If the new product is launched, it is raining that the new product will give an increased turnover of 1,000,000. In addition, it is calculated also that the product will increase the turnover volume of the other products by 10% annually in the whole period. The product is priced so that it provides the same coverage as the company's others production, ie 60%. The annual fixed costs excluding interest and depreciation have so far been 500,000 annually, but will increase to 700,000 annually if the new product is produced and sold. The share beta on the company's shares is 1.4 and the return on the market marfalla in 100/ Thin company harrow manastion Interctra.of 3.000/ DI C 11 The share beta on the company's shares is 1.4 and the return on the market portfolio is 10%. The company can borrow money at an interest rate of 3.90% before tax, while the risk-free interest rate is 2% before tax. Fixed assets are depreciated for tax purposes according to the balance method at 20% annually and the company finances its investments with a debt ratio of 52%. The tax rate is 22%. I a) Calculate the project's required return after tax (WACC). b) Calculate the present value of the project and consider whether the company should acquire this machine and launch the new product. c) What is the repayment period for the proiect provided that the income. a) Calculate the project's required return after tax (WACC). Stier b) Calculate the present value of the project and consider whether the company should acquire this machine and launch the new product. c) What is the repayment period for the project provided that the income comes through evenly the year? Consider whether the company should carry out the project if the company accepts one repayment period of 4 years for similar projects. I d) We now imagine that the company bought the fixed assets and launched the product. It's over now one year since the machine was purchased, and the company has now found that part of the estimates man built their analysis on were inaccurate. It turned out that the turnover for the new product was 15% lower than expected. The fixed costs were 720,000 and not 700,000 the project had been accepted if one had known about this in advance? A company is considering whether to launch a new product. A consulting firm was contacted, and after a survey the company is invoiced 250,000 for, the consulting firm presents the following analysis: To produce the product, the company needs fixed assets that cost 1,000,000 and that have 5 years service life. The scrapping value is 0. If the intended expansion is to be implemented the company must increase the capital tied up in working capital. It is estimated that trade receivables will remain 100,000, inventories 90,000 while accounts payable are budgeted at 80,000. I The introduction costs for the new product will be 400,000, and will accrue in year 1. The company's old turnover has been 2,000,000. If the new product is launched, it is raining that the new product will give an increased turnover of 1,000,000. In addition, it is calculated also that the product will increase the turnover volume of the other products by 10% annually in the whole period. The product is priced so that it provides the same coverage as the company's others production, ie 60%. The annual fixed costs excluding interest and depreciation have so far been 500,000 annually, but will increase to 700,000 annually if the new product is produced and sold. The share beta on the company's shares is 1.4 and the return on the market marfalla in 100/ Thin company harrow manastion Interctra.of 3.000/ DI C 11 The share beta on the company's shares is 1.4 and the return on the market portfolio is 10%. The company can borrow money at an interest rate of 3.90% before tax, while the risk-free interest rate is 2% before tax. Fixed assets are depreciated for tax purposes according to the balance method at 20% annually and the company finances its investments with a debt ratio of 52%. The tax rate is 22%. I a) Calculate the project's required return after tax (WACC). b) Calculate the present value of the project and consider whether the company should acquire this machine and launch the new product. c) What is the repayment period for the proiect provided that the income. a) Calculate the project's required return after tax (WACC). Stier b) Calculate the present value of the project and consider whether the company should acquire this machine and launch the new product. c) What is the repayment period for the project provided that the income comes through evenly the year? Consider whether the company should carry out the project if the company accepts one repayment period of 4 years for similar projects. I d) We now imagine that the company bought the fixed assets and launched the product. It's over now one year since the machine was purchased, and the company has now found that part of the estimates man built their analysis on were inaccurate. It turned out that the turnover for the new product was 15% lower than expected. The fixed costs were 720,000 and not 700,000 the project had been accepted if one had known about this in advance?

Answer rating: 100% (QA)

Part A WACC kd1T ks kd1T 39 x 122 302 ks 10 302 698 WACC 302 698 10 Part b PV 1000000082500000641000... View the full answer