The company CONES, S.A. By observing the bottleneck generated by its baking phase, you are analyzing the
Question:
The company CONES, S.A. By observing the bottleneck generated by its baking phase, you are analyzing the possibility of buying a new oven to solve this problem. The investment required would be € 18,000, with a useful life of 4 years and a residual value equal to 10% of the initial investment.
It is estimated that with the new kiln, production and sales would increase considerably. Specifically, sales would grow by € 9,000 per year. Costs absorb 50% of sales.
To finance the purchase of the furnace, the current partners are willing to make the necessary contributions provided that the remuneration to be received is 12%; the new shares would be issued at 200% of the par value. The bank with which the company usually works also offers a 4-year loan, at 7% for the necessary amount as long as the current financial structure of the company is maintained (see balance in Annex I), a condition under which the partners also they agree.
The nominal value of the share is € 1. All the elements of the fixed assets of CONES, S.A. they are amortized using the straight-line method. The tax rate is 25%.
(ANNEX 1)
| Capital | €180,000.00 |
| Issue premium | € 30,000.00 |
| Reserves | € 345,000.00 |
| Long-term loans | € 605,000.00 |
| Short-term loans | € 50,000.00 |
| Suppliers | € 60,000.00 |
Total | € 1,270,000.00 |
1) Analyze in detail the suitability of the investment through the calculation of its IRR.
2) Detail how the new balance (Liabilities + Equity, with its different components) would look after making the investment
Expert Answer:
1The Internal Rate of Return IRR is the discount rate that makes the Net Present Value NPV of an inv... View the full answer
