You have been hired by Amreez Corporation (AC), a manufacturer of Bop a Pop (BaP), a...

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You have been hired by Amreez Corporation (AC), a manufacturerof Bop a Pop (BaP), a recent fad, to determine whether or not ACshould pursue the manufacture of BaP. After a few meetings with keyexecutives, you have collected the following information:a. AC ownsa plot of land that it had bought ten years ago for $1.5 millionwith the intent of using it to set up a waste management plant.However, it has since subcontracted their waste management process.b. Land prices in the area have been increasing at 3.5% per yearand are expected to continue to grow at the same rate, and AC’s topbrass is not concerned about non-use of the land.c. AC had recentlyhired a marketing consultant, who was paid $250,000 to analyze theBaP market.d. The marketing consultant had estimated that AC canhave annual sales of 60000, 70000, and 30000 units of BaP at aprice of $40/piece in the next three years, and then the fad willdissipate.e. If AC decides to manufacture BaP, it will construct abuilding at a cost of $1,670,000 and install equipment worth$730,000.f.Variable cost of manufacturing per unit will be $4.50,and production will also need additional working capital of$210,000g. Building will be depreciated on a straight line basis tozero in 30 years, land cannot be depreciated, while the equipmentwill be depreciated on a three year MACRS schedule. h. At the endof 3 years, AC plans to shut down the manufacture of BaP, and sellthe equipment for $350,000, and the building and land for$3,500,000.i.Corporate Tax rate is 21%. j.AC requires a minimumreturn of 13.5% on all its projects. You like to base your resultson NPV and IRR. Prepare a report of your analysis for AC.

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3.8 Ratings (573 Votes)

The cash flows NPV and IRR are calculated as below Operating Cash Flow OCF each year income after tax depreciationBook value of equipment after 3 years 730000 cumulativedepreciation 730000 675907 See Answer

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You have been hired by Amreez Corporation (AC), a manufacturerof Bop a Pop (BaP), a recent fad, to determine whether or not ACshould pursue the manufacture of BaP. After a few meetings with keyexecutives, you have collected the following information:a. AC ownsa plot of land that it had bought ten years ago for $1.5 millionwith the intent of using it to set up a waste management plant.However, it has since subcontracted their waste management process.b. Land prices in the area have been increasing at 3.5% per yearand are expected to continue to grow at the same rate, and AC’s topbrass is not concerned about non-use of the land.c. AC had recentlyhired a marketing consultant, who was paid $250,000 to analyze theBaP market.d. The marketing consultant had estimated that AC canhave annual sales of 60000, 70000, and 30000 units of BaP at aprice of $40/piece in the next three years, and then the fad willdissipate.e. If AC decides to manufacture BaP, it will construct abuilding at a cost of $1,670,000 and install equipment worth$730,000.f.Variable cost of manufacturing per unit will be $4.50,and production will also need additional working capital of$210,000g. Building will be depreciated on a straight line basis tozero in 30 years, land cannot be depreciated, while the equipmentwill be depreciated on a three year MACRS schedule. h. At the endof 3 years, AC plans to shut down the manufacture of BaP, and sellthe equipment for $350,000, and the building and land for$3,500,000.i.Corporate Tax rate is 21%. j.AC requires a minimumreturn of 13.5% on all its projects. You like to base your resultson NPV and IRR. Prepare a report of your analysis for AC.