Vino plc is considering launching a new product. The company accountant has prepared calculations to show that the NPV of the product is estimated to be positive. She has just discovered, however, that some items of information had not been provided to her prior to carrying out her calculations. They are as follows: 1. The new product will be manufactured in a large factory which has spare capacity and where other products are also manufactured. It has recently been decided by senior management that the new product will be charged with 10% of the factory rent. 2. The new product will be financed partly by a loan. Interest charges are expected to be £80,000 per year. What effect (increase/decrease/no effect) will these new items of information have on the estimated NPV of the product? (...)
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- Voda plc is considering launching a new product. The company accountant has just prepared calculations to show that the NPV of the product is estimated to be positive. She has discovered, however, that some items of information had not been provided to her prior to carrying out her calculations. They are as follows: 1. The new product can be used in conjunction with another profitable product that the company already produces. As a result, sales of the other product are likely to increase. 2. Two months earlier, the company signed a binding contract to lease a factory in anticipation of the product being launched. The first lease payment will be made in three months' time. What effect (increase/decrease/no effect) will these items of information have on the estimated NPV of the product? Item 1 OA. No effect B. No effect OC. Increase OD. Increase Item 2 Decrease No effect No effect DecreaseMeredith had an excellent management science course as part of her MBA program in college, so she realizes that break-even analysis is needed to help make this decision. With this in mind, she instructs several staff members to investigate this prospective product further, including developing estimates of the related costs and revenues as well as forecasting the potential sales. One month later, the preliminary estimates of the relevant financial figures come back. The cost of designing the grandfather clock and then setting up the production facilities to produce this product would be approximately $250,000. There would be only one production run for this limited-edition grandfather clock. The additional cost for each clock produced would be roughly $2,000. The marketing department estimates that their price for selling the clocks can be successfully set at about $4,500 apiece, but a firm forecast of how many clocks can be sold at this price has not yet been obtained. However, it is…Hello, may you please help me with the following.. Mary Martell is a finance intern at a big corporation that was given the task to evaluate the profitability of a new, state of the art production line. She found that the project has a negative NPV. This is bad news for Sarah Pearl, who is the head of the manufacturing department and the proponent of the project. Mary delivered the news to her boss, Winston Rodriguez, who called Sarah and gave her the news: “Hello Sarah this is Winston from the finance department. The new inter confirmed what we all knew in the department: the net present value of your proposal is negative and therefore we need to reject the project. To be honest, we already had reached that conclusion but we wanted an outside opinion and gave Mary the task of evaluating the project. Sorry, but the project is a no.” Sarah later sent an email to Winston: “Winston, please, don’t kill my project.” She then asked the following questions: “Why is the NPV so important?…
- Danielle Hastings was recently hired as a cost analyst by CareNet Medical Supplies Inc. One of Danielle's first assignments was to perform a net present value analysis for a new warehouse. Danielle performed the analysis and calculated a present value index of 0.75. The plant manager, Jerrod Moore, is intent on purchasing the warehouse because he believes that more storage space is needed. Jerrod asks Danielle to come to his office, where the following conversation takes place: Jerrod: Danielle, you're new here, aren't you? Danielle: Yes, I am. Jerrod: Well, Danielle, I'm not at all pleased with the capital investment analysis that you performed on this new warehouse. I need that warehouse for my production. If I don't get it, where am I going to place our output? Danielle: Well, we need to get product into our customers' hands. Jerrod: I agree, and we need a warehouse to do that. Danielle: My analysis does not support constructing a new warehouse. The numbers…You have just started your summer internship, and your boss asks you to review a recent analysis that was done to compare three alternative proposals to enhance the firm's manufacturing facility. You find that the prior analysis ranked the proposals according to their IRR, and recommended the highest IRR option, Proposal A. You are concerned and decide to redo the analysis using NPV to determine whether this recommendation was appropriate. But while you are confident the IRRS were computed correctly, it seems that some of the underlying data regarding the cash flows that were estimated for each proposal was not included in the report. For Proposal B, you cannot find information regarding the total initial investment that was required in Year 0. And for Proposal C, you cannot find the data regarding additional salvage value that will be recovered in Year 3. Here is the information you have (in $ millions): - Suppose the appropriate cost of capital for each alternative is 10%. Using this…You have just started your summer internship, and your boss asks you to review a recent analysis that was done to compare three alternative proposals to enhance the firm's manufacturing facility. You find that the prior analysis ranked the proposals according to their IRR, and recommended the highest IRR option, Proposal A. You are concerned and decide to redo the analysis using NPV to determine whether this recommendation was appropriate. But while you are confident the IRRs were computed correctly, it seems that some of the underlying data regarding the cash flows that were estimated for each proposal was not included in the report. For Proposal B, you cannot find information regarding the total initial investment that was required in Year 0. And for Proposal C, you cannot find the data regarding additional salvage value that will be recovered in Year 3. Here is the information you have (in $ millions): Suppose the appropriate cost of capital for each alternative is 10%. Using this…
- Whitehaven Group Ltd (WHG) is an industrial machinery manufacturing company based in Sydney. Due to increased demand for the company’s products the CEO of WHG, Mr John Johnson, is looking at upgrading the company’s production facilities at Chullora. As the member of the finance department at WHG you have been assigned the task of assessing the acceptability of the new project. • To assist you in this task the finance team have prepared the following information relating to the proposed project:• Implementation of the new project would require an immediate outlay of $10,000,000 on new machinery. This machinery is depreciable for tax purposes.• Additionally, WHG would need to undertake an immediate upgrade of the warehouse used for the project. This upgrade would cost $2,500,000 and is not considered depreciable for tax purposes.• The project is expected to have an operational life of four years.• The project is expected to generate EBDIT (in nominal values) of $5,000,000 in the first…You have just started your summer internship, and your boss asks you to review a recent analysis that was done to compare three alternative proposals to enhance the firm's manufacturing facility. You find that the prior analysis ranked the proposals according to their IRR, and recommended the highest IRR option, Proposal A. You are concerned and decide to redo the analysis using NPV to determine whether this recommendation was appropriate. But while you are confident the IRRS were computed correctly, it seems that some of the underlying data regarding the cash flows that were estimated for each proposal was not included in the report. For Proposal B, you cannot find information regarding the total initial investment that was required in Year 0. And for Proposal C, you cannot find the data regarding additional salvage value that will be recovered in Year 3. Here is the information you have (in $ millions): Proposal Year 1 Year 2 с IRR 60.0% 54.3% 53.6% Year 0 - $100 $30 $0 $37 $153 $206…Danielle Hastings was recently hired as a cost analyst by CareNet Medical Supplies Inc. One of Danielle’s first assignments was to perform a net present value analysis for a new warehouse. Danielle performed the analysis and calculated a present value index of 0.75. The plant manager, Jerrod Moore, is very intent on purchasing the warehouse because be believes that more storage space is needed. Jerrod asks Danielle into his office and the following conversation takes place: Jerrod: Danielle, you’re new here, aren’t you? Danielle: Yes, I am. Jerrod: Well, Danielle, I’m not at all pleased with capital investment analysis that you performed on this new warehouse. I need that warehouse for my production. If I don’t get it, where am I going to place out output? Danielle: Well, we need to get product into our customer’s hands. Jerrod: I agree, and we need a warehouse to do that. Danielle: My analysis does not support constructing a new warehouse. The numbers don’t lie; the warehouse does not…
- NextG Limited is a leading manufacturer of automotive components. It supplies to the original equipment manufacturers as well as the replacement market. Its projects typically have a short life as it introduces new models periodically. You have recently joined NextG Limited as a financial analyst reporting to Mr. Atiamoh, the CFO of the company. He has provided you the following information about two mutually exclusive projects. A and B, that are being considered by the Executive Committee of NextG Limited:Project A is an extension of an existing line. Its cash flow will decrease over time. Project B involves a new product. Building its market will take some time and hence its cash flow will increase over time.The expected net cash flows of the two mutually exclusive projects are as follows. Mr. Atiamoh believes that all the two projects have risk characteristics similar to the average risk of the firm and hence NextG’s cost of capital of 10 percent will apply to them and both…Mary Martell is a finance intern at a big corporation that was given the task to evaluate the profitability of a new, state of the art production line. She found that the project has a negative NPV. This is bad news for Sarah Pearl, who is the head of the manufacturing department and the proponent of the project. Mary delivered the news to her boss, Winston Rodriguez, who called Sarah and gave her the news: “Hello Sarah this is Winston from the finance department. The new inter confirmed what we all knew in the department: the net present value of your proposal is negative and therefore we need to reject the project. To be honest, we already had reached that conclusion but we wanted an outside opinion and gave Mary the task of evaluating the project. Sorry, but the project is a no.” Sarah later sent an email to Winston: “Winston, please, don’t kill my project.” She then asked the following questions: 1.“Why is the NPV so important? 2.Why don’t we use the average accounting rate of…Mary Martell is a finance intern at a big corporation that was given the task to evaluate the profitability of a new, state of the art production line. She found that the project has a negative NPV. This is bad news for Sarah Pearl, who is the head of the manufacturing department and the proponent of the project. Mary delivered the news to her boss, Winston Rodriguez, who called Sarah and gave her the news: “Hello Sarah this is Winston from the finance department. The new inter confirmed what we all knew in the department: the net present value of your proposal is negative and therefore we need to reject the project. To be honest, we already had reached that conclusion but we wanted an outside opinion and gave Mary the task of evaluating the project. Sorry, but the project is a no.”Sarah later sent an email to Winston: “Winston, please, don’t kill my project.” She then asked the following questions: “Why is the NPV so important? Why don’t we use the average accounting rate of return…