Business, 21.06.2021 09:50 averycipher

The Pizza Company is considering a new three-year expansion project. The key data are shown below: The company hired a consulting firm to help evaluate the project and paid the consulting fee of $60,000. The company owns the space. If company did not invest in the project, it can receive after-tax rental fee for $300,000 per year for 3 years. However, if the
company invested in the project, it will use the space for the project.
 The fixed cost to produce pizza is required at $150,000 per year.
 It is estimated that 50,000 units will be sold in the first year and that 40,000 units and 30,000 units will be sold in the second and third years respectively.
 Each pizza is expected to sell for $25 and the production cost will be $15 per unit.
 The sales price and variable cost should increase with inflation. Expected inflation rate per year is 5%.
 The project requires an initial investment in working capital of $500,000, which will be required in each year at 10% of revenue in the following year.
 The purchase of the machinery at the start of the project is $1,000,000. The shipping and installation cost are $200,000. The machinery will be depreciated straight-line to zero. It is estimated that the machinery can be sold at the end of the project for $250,000.
 To finance the project, the company would need to take a one-million dollar loan at 8% interest rate p. a. from HSBC over the life of the project. Annual interest expense is $80,000.
 The corporate tax rate is 34%.
 The Pizza Company is evaluating its cost of capital under alternative financing arrangements. In consultation with the consulting firm, the Pizza Company expects to be able to issue new Debt at Par with a coupon rate of 8% (coupons paid annually) and to issue new preferred stock with a $4 per share dividend at $32 a share. The common stock of the Pizza Company is currently selling for $22 a share while its book value is $6. The Pizza Company expects to pay a total
dividend of $525,000 for its 200,000 common shares outstanding next year. Market analysts foresee a growth in dividends of the company at the rate of 4% per year. The Pizza Company raises capital using 30% bond, 20% preferred stock, and 50% common stock
a. What is the cost of capital (WACC) of the Pizza Company?
b. Calculate the NPV of the project using the cost of capital calculated in part (a).
Should the project be accepted?

Answers: 2

Show answers

Another question on Business

Business, 21.06.2019 22:10

Sarah needs to complete financial aid packets. during which school year would she do this? sophomore freshman senior junior

Answers: 2

Answer

Business, 22.06.2019 17:00

Cadbury has a chocolate factory in dunedin, new zealand. for easter, it makes two kinds of “easter eggs”: milk chocolate and dark chocolate. it cycles between producing milk and dark chocolate eggs. the table below provides data on these two products. demand (lbs per hour) milk: 500 dark: 200 switchover time (minutes) milk: 60 dark: 30 production rate per hour milk: 800 dark: 800 for example, it takes 30 minutes to switch production from milk to dark chocolate. demand for milk chocolate is higher (500lbs per hour versus 200 lbs per hour), but the line produces them at the same rate (when operating): 800 lbs per hour. a : suppose cadbury produces 2,334lbs milk chocolate and 1,652 lbs of dark chocolate in each cycle. what would be the maximum inventory (lbs) of milk chocolate? b : how many lbs of milk and dark chocolate should be produced with each cycle so as to satisfy demand while minimizing inventory?

Answers: 2

Answer

Business, 22.06.2019 19:50

Aproduction line has three machines a, b, and c, with reliabilities of .96, .86, and .85, respectively. the machines are arranged so that if one breaks down, the others must shut down. engineers are weighing two alternative designs for increasing the line’s reliability. plan 1 involves adding an identical backup line, and plan 2 involves providing a backup for each machine. in either case, three machines (a, b, and c) would be used with reliabilities equal to the original three. a. compute overall system reliability under plan 1. (round your intermediate calculations and final answer to 4 decimal places.) reliability b. compute overall system reliability under plan 2. (round your intermediate calculations and final answer to 4 decimal places.) reliability c. which plan will provide the higher reliability? plan2plan1

Answers: 3

Answer

Business, 22.06.2019 20:10

The gilbert instrument corporation is considering replacing the wood steamer it currently uses to shape guitar sides. the steamer has 6 years of remaining life. if kept,the steamer will have depreciaiton expenses of $650 for five years and $325 for the sixthyear. its current book value is $3,575, and it can be sold on an internet auction site for$4,150 at this time. if the old steamer is not replaced, it can be sold for $800 at the endof its useful life. gilbert is considering purchasing the side steamer 3000, a higher-end steamer, whichcosts $12,000 and has an estimated useful life of 6 years with an estimated salvage value of$1,500. this steamer falls into the macrs 5-year class, so the applicable depreciationrates are 20.00%, 32.00%, 19.20%, 11.52%, 11.52%, and 5.76%. the new steamer is fasterand allows for an output expansion, so sales would rise by $2,000 per year; the newmachine's much greater efficiency would reduce operating expenses by $1,900 per year.to support the greater sales, the new machine would require that inventories increase by$2,900, but accounts payable would simultaneously increase by $700. gilbert's marginalfederal-plus-state tax rate is 40%, and its wacc is 15%.a. should it replace the old steamer? b. npv of replace = $2,083.51

Answers: 2

Answer

You know the right answer?

The Pizza Company is considering a new three-year expansion project. The key data are shown below:...

Questions