Tarzor Battery Technology, Inc. (TBT) is a producer and distributor of specialty batteries. Recently, TBT management...

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Tarzor Battery Technology, Inc. (TBT) is a producer and distributor of specialty batteries. Recently, TBT management had the idea of producing an innovative model of lithium batteries for fishing trolling motors. The new battery will have longer life than currently available trolling motor batteries. The new battery will also be much lighter than traditional trolling motor batteries. The company's marketing division decides on the name "Trollmax" for the new battery. The TBT "Trollmax" will depend crucially on a proprietary lithium-iron-phosphate battery technology which will require lithium, copper, iron, and graphite for production. TBT management has forecasted that battery metals prices will rise at 5% per year during the life of the project, causing a proportionate increase in materials costs each year after the first year. During the first year of operation, the materials cost per unit is forecast at $448.50. Based on past product cycles, the firm's managers expect the product to be viable for seven years. Due to increasing competition in the specialty battery market, management forecasts both unit sales and unit prices to fall after the first four years. The following table contains estimates of key inputs for each year of the project. Year 0 1 2 3 4 5 6 7 Operating Data Units Price per Unit Materials Cost per Unit 24,000 1,495.00 448.50 $665 29,000 1,620.00 35,000 1,700.00 38,000 1,825.00 37,000 1,780.00 34,000 1,760.00 28,000 1,725.00 $682 $701 $735 $762 $1,570 1,585.00 Other Variable Cost Per Unit Fixed assets for the project will have a tax inclusive cost of $12,100,000. Shipping for the fixed assets will be $300,000. Installation of the new machinery will run $45,233. The fixed assets associated with this project have a 5-year MACRS class life. It is expected that the fixed assets will be sold at the end of the project for $850,000. Selling and Administrative Expense for the project is independent of the level of sales and is estimated at $ 623,450.00 for the first year of the project. However, thereafter S&A Expense is expected to increase at a rate of 2% per year throughout the life of the project. Net Working Capital requirements at the start of the project are $1,750,000 (time zero) and then will be 12% of dollar sales in each year of the project with the entire final year's balance of NWC being recaptured at the very end of the project. If the firm has a WACC of 9% and a tax rate of 28%, should the project be undertaken? Prepare a spreadsheet similar to the examples discussed in the lectures and in the textbook. Calculate the project's NPV, IRR, and Payback. Q Search K PRE Tarzor Battery Technology, Inc. (TBT) is a producer and distributor of specialty batteries. Recently, TBT management had the idea of producing an innovative model of lithium batteries for fishing trolling motors. The new battery will have longer life than currently available trolling motor batteries. The new battery will also be much lighter than traditional trolling motor batteries. The company's marketing division decides on the name "Trollmax" for the new battery. The TBT "Trollmax" will depend crucially on a proprietary lithium-iron-phosphate battery technology which will require lithium, copper, iron, and graphite for production. TBT management has forecasted that battery metals prices will rise at 5% per year during the life of the project, causing a proportionate increase in materials costs each year after the first year. During the first year of operation, the materials cost per unit is forecast at $448.50. Based on past product cycles, the firm's managers expect the product to be viable for seven years. Due to increasing competition in the specialty battery market, management forecasts both unit sales and unit prices to fall after the first four years. The following table contains estimates of key inputs for each year of the project. Year 0 1 2 3 4 5 6 7 Operating Data Units Price per Unit Materials Cost per Unit 24,000 1,495.00 448.50 $665 29,000 1,620.00 35,000 1,700.00 38,000 1,825.00 37,000 1,780.00 34,000 1,760.00 28,000 1,725.00 $682 $701 $735 $762 $1,570 1,585.00 Other Variable Cost Per Unit Fixed assets for the project will have a tax inclusive cost of $12,100,000. Shipping for the fixed assets will be $300,000. Installation of the new machinery will run $45,233. The fixed assets associated with this project have a 5-year MACRS class life. It is expected that the fixed assets will be sold at the end of the project for $850,000. Selling and Administrative Expense for the project is independent of the level of sales and is estimated at $ 623,450.00 for the first year of the project. However, thereafter S&A Expense is expected to increase at a rate of 2% per year throughout the life of the project. Net Working Capital requirements at the start of the project are $1,750,000 (time zero) and then will be 12% of dollar sales in each year of the project with the entire final year's balance of NWC being recaptured at the very end of the project. If the firm has a WACC of 9% and a tax rate of 28%, should the project be undertaken? Prepare a spreadsheet similar to the examples discussed in the lectures and in the textbook. Calculate the project's NPV, IRR, and Payback. Q Search K PRE

Answer rating: 100% (QA)

To evaluate whether the project should be undertaken well calculate the Net Present Value NPV Internal Rate of Return IRR and Payback Period Lets brea... View the full answer