Suppose that you are considering the acquisition of a factory that specializes in the manufacture of nose hair trimmers. The Trimmer is marketed on television for $9.99, is battery operated, and uses a swirling blade much like the Norelco razor. The factory manufactures about 1,000,000 units per year, sells the trimmer to the wholesaler for $6.37 per unit, and has a cost of manufacture of $1.87 per unit. If the factory must rent space for $1,000,000 per year, the expected life of the equipment is 15 years, demand is estimated to be steady, and the tax rate is 28%, what is the NPV if you pay $25,000,000 for the factory and your required return is 15% (after-tax)? Show a detailed pro-forma financial model. You should not need Excel to do this problem.
| Sales | 6,370,000 |
| COGS | 1,870,000 |
| SGA | 1,000,000 |
| EBT | 3,500,000 |
| Tax (28%) | 980,000 |
| Profits | 2,520,000 |
Calculate the annual profits from the factory as shown above.
Now. present value of profits for 15 years can be calculated using PV function on a calculator
N = 15, PMT = 2,520,000, I/Y = 15%, FV = 0,
=> Compute PV = $14,735,372.65
NPV = 14,735,372.65 - 25,000,000 = -10,264,627.35
Suppose that you are considering the acquisition of a factory that specializes in the manufacture of...
Martin, Inc., is considering the development of a subsidiary in Sydney, Australia that would manufacture and sell high quality guitars on the local Australian Market. As one of Martin’s financial managers, you have asked the finance, marketing and manufacturing departments to provide you with all of the relevant input so you can perform a capital budgeting analysis to determine whether to undertake this project or not. In addition, a contingent of Martin executives have met with Australian government officials in...
Martin, Inc., is considering the development of a subsidiary in Sydney, Australia that would manufacture and sell high quality guitars on the local Australian Market. As one of Martin’s financial managers, you have asked the finance, marketing and manufacturing departments to provide you with all of the relevant input so you can perform a capital budgeting analysis to determine whether to undertake this project or not. In addition, a contingent of Martin executives have met with Australian government officials in...
• Martin, Inc., is considering the development of a subsidiary in Sydney, Australia that would manufacture and sell high quality guitars on the local Australian Market. • As one of Martin’s financial managers, you have asked the finance, marketing and manufacturing departments to provide you with all of the relevant input so you can perform a capital budgeting analysis to determine whether to undertake this project or not. • In addition, a contingent of Martin executives have met with Australian...