60.1K

Verified Solution

Link Copied!

Capital Budgeting Question

CoursHeroTranscribedText: Capital Budgeting Decision Since I corporation is producing at full capacity, Amanda has decided to have Han examine the feasibility of a new manufacturing plant. This expansion would represent a major capital outlay for the company. A preliminary analysis of the project has been conducted at a cost of $1.6 million. This analysis determined that the new plant will require an immediate outlay of $54 million and an additional outlay of 531 million in one year. The company has received a special tax dispensation that will allow the building and equipment to be depreciated on a 20-year MACRS schedule. HrMH-nhmmtml'l. I" new 3an 5-an 1-Year 1 IMF-Ir 1 5-qu 10-?" w 1 51.13 map 14.29 mm 5m 1751) 2 .45 smu- H49 tam 9m 7.219 .5 14:31" 19.21:: 1149 14.41: 1.55 M" 4 F." 11.52' 12.49 11.52 7.11} 6.1??? 5 11.52 333' 9.22 6.93 5.113 E ETE- BJPZ 137 6.23 5255 at "El 555' $90- all-B- a 4.46 555 5.90 4.522 9 555 191 4452' 10 555 5.90 4.4151 1 t 1.28 5.91 4.451 12 5.911 MI 13 5.91 W 14 5.90 W1 1 5 5.91 1462 15 2.95 4.461 1 7 4.452 18 4.1161 1'! W m 4.461 1'1 2.231 Because of the time necessary to build the new plant, no sales will be possible for the next year. Two years from now, the company will have partialyear sales of $1? million. Sales in the following four years will be 525 million, $3? million, 340 million, and $43 million. Because the new plant will be more efcient than X corporation's current manufacturing facilities, variable costs are expected to be 65 percent of sales, and fixed costs will be 52.4 million per year. The new plant will also require net working capital amounting to B percerrt of sales for the next year. Han realizes that sales from the new plant will continue into the indefinite future. Because of this, he believes the cash ows after Year 5 will corrtinue to grow at 2.5 percent indefinitely. The company's tax rate is 4!] percent and the required return is 12 percent. 1] Amanda is not sure about the capital budgeting technique and warrt lilce Han to elaborate clearly what are and are not important elements to engage the capital budgeting decision for the X corporation. :[ in depth analysis not copied and pasted off google please}

Answer & Explanation Solved by verified expert

See Answer