Assume that your group is working Financial Team of a seafood exports company. Your company is...
Fantastic news! We've Found the answer you've been seeking!
Question:
Transcribed Image Text:
Assume that your group is working Financial Team of a seafood exports company. Your company is considering to buy a new machinery for canning of seafood products. Two options of machinery are recommended by your company suppliers. The two options that can generate similar annual revenue but incur different initial investments and annual expenses. Your company's Management Board requested your financial team to recommend a project evaluation method and perform it to select one of the options. The table below shows the estimated cash flows available for each option: Option A ($) 1,420,000 Year 3 Year 4 Year 5 Option B ($) $1,530,000 Initial Investment Annual cost, including electricity, maintaining and other relevant expenses Year 1 36,000 39,000 Year 2 36,000 39,000 36,000 39,000 36,000 39,000 39,000 You are required to write a short report to the company's Management: 1) To select a relevant method among five investment criteria of Net Present Value (NPV), Equivalent Annual Cost (EAC), profitability Index (PI), Internal Rate of Return (IRR), Simple Payback Period, and Discounted Payback Period for this project, given the discount rate applied for all project is xxx % (to be provided later) and the company's benchmark of payback is maximum 3 years. Your recommendation must include your justification on why you choose the specific method based on its pros and cons compared to other methods, the BOM's concern of efficiency and the financial circumstance of the company. (2 marks) 2) To perform the selected method and present the outcome of your project evaluation and recommend the Option A or B should the company choose for this project. Your justification must include calculation steps and numerical outcomes. (5 marks) Assume that your group is working Financial Team of a seafood exports company. Your company is considering to buy a new machinery for canning of seafood products. Two options of machinery are recommended by your company suppliers. The two options that can generate similar annual revenue but incur different initial investments and annual expenses. Your company's Management Board requested your financial team to recommend a project evaluation method and perform it to select one of the options. The table below shows the estimated cash flows available for each option: Option A ($) 1,420,000 Year 3 Year 4 Year 5 Option B ($) $1,530,000 Initial Investment Annual cost, including electricity, maintaining and other relevant expenses Year 1 36,000 39,000 Year 2 36,000 39,000 36,000 39,000 36,000 39,000 39,000 You are required to write a short report to the company's Management: 1) To select a relevant method among five investment criteria of Net Present Value (NPV), Equivalent Annual Cost (EAC), profitability Index (PI), Internal Rate of Return (IRR), Simple Payback Period, and Discounted Payback Period for this project, given the discount rate applied for all project is xxx % (to be provided later) and the company's benchmark of payback is maximum 3 years. Your recommendation must include your justification on why you choose the specific method based on its pros and cons compared to other methods, the BOM's concern of efficiency and the financial circumstance of the company. (2 marks) 2) To perform the selected method and present the outcome of your project evaluation and recommend the Option A or B should the company choose for this project. Your justification must include calculation steps and numerical outcomes. (5 marks)
Expert Answer:
Answer rating: 100% (QA)
a Option A Initial Investment 1420000 Annual cost including electricity maintaining and other relevant expenses Year 1 36000 Year 2 39000 Year 3 39000 ... View the full answer
Related Book For
Fundamentals of Investments
ISBN: 978-0132926171
3rd edition
Authors: Gordon J. Alexander, William F. Sharpe, Jeffery V. Bailey
Posted Date:
Students also viewed these corporate finance questions
-
Assume that your group is a consulting firm that offers systems development services. Now a meal solution company would like you to design an information system for their business. But the meal...
-
Year 1 Year 2 Year 3 Year 4 Year 5 Method 1: Number of American with BMI between 25 and 30 78200000 78200000 78200000 78200000 78200000 x 35% actively trying to lose weight 27370000 27370000 27370000...
-
Assume that your group represents the Credit Manager of a North Vancouver Credit Union and that Mr. Wayne Gretski, on his way through Vancouver to the 2022 Olympics, has asked that you analyze the...
-
Dakota Company purchased several assets from a competitor, paying a lump-sum of $1,000,000 (one million dollars). The assets included: i. Land - valued at $420,000 ii. Building - valued at $400,000...
-
Define the four basic assumptions underlying GAAP.
-
Rework in job costing, journal entry (continuation of 18-35). Assume that the 7 spoiled units of Whitefish Machine Shops Job #10 can be reworked for a total cost of $1,700. A total cost of $10,150...
-
The smooth, concrete-lined channel shown in Fig. P10.46 is built on a slope of \(2 \mathrm{~m} / \mathrm{km}\). Determine the flowrate if the depth is \(y=1.5 \mathrm{~m}\). Figure P10.46 -6 m- 1.0 m...
-
Leyh Management Co. classifies its operations into three departments: commercial sales, residential sales, and property management. The owner, Ellen Leyh, wants to know the full cost of operating...
-
In reactive distillation, how does the integration of chemical reactions within the distillation process affect equilibrium and kinetics? Discuss applications where this technique is particularly...
-
John Parsons (123-45-6781) and George Smith (123-45-6782) are 70% and 30% owners, respectively, of Premium, Inc. (11-1111111), a candy company located at 1005 16th Street, Cut and Shoot, TX 77303....
-
As a Mexican restaurant owner/operator, what are the feedback loops that you should be aware of in planning your menu offerings if there is an avocado ban?
-
Evaluate log3 1 243
-
Can you rephrase this: Efficient communication guarantees that data concerning internal control duties is recognized, gathered, and shared in a manner and timeline that enables staff to fulfill their...
-
Total debt-to-assets ratio, debt-to-equity ratio and Long-term debt-to-capital ratio are examples of what type or category of ratios?
-
How can companies and marketing teams, in particular, anticipate how AI will impact market research? As AI continues to be developed even further, how do you foresee that it will disrupt the...
-
The directors of a company require that all investment projects should be evaluated using either payback period or return on capital employed ( accounting rate of return ) . The target payback period...
-
Two point-like objects P and Q are undergoing circular motion at constant speeds. Figure Q5.8 shows four possible combinations of paths for the two objects during the same time interval. Choose which...
-
Perform the indicated operations. In designing a cam for a fire engine pump, the expression is used. Simplify this expression. (3) (3 4 32
-
Kitty Bransfield owns a portfolio composed of three securities. The betas of those securities and their proportions in Kitty's portfolio are shown here. What is the beta of Kitty's portfolio?...
-
At the beginning of the year, Con Daily's portfolio was worth $9,000. At the end of each of the next four quarters, Con received a gift of $500, which was invested in the portfolio. At the end of...
-
How does the efficient set change when the condition of borrowing and lending at the same riskfree rate is changed to borrowing at a rate greater than the rate at which riskfree lending can be...
-
Verify that the log-likelihood of model (7.7) is \(\sum_{i=1}^{k}\left[n_{i} \lambda-\exp (\lambda) ight]\). (a) Compute MLE of \(\lambda\). (b) Compute the Pearson chi-square statistic and compare...
-
Think about the general concept of a relationship, not necessarily in a business setting, but just relationships in general between any two parties. What aspects of relationships are inherently...
-
Has transactional selling gone the way of the dinosaur? That is, are there ever any situations in which a transactional approach to selling would be an appropriate approach today? If so, what are...
Study smarter with the SolutionInn App