A manufacturing company is thinking of launching a new product. The company expects to sell $950,000 of the new product in the first year and $1,500,000 each year thereafter. Direct costs including labor and materials will be 45% of sales. Indirect incremental costs are estimated at $95,000 a year. The project requires a new plant that will cost a total of $1,500,000, which will be a depreciated straight line over the next 5 years. The new line will also require an additional net investment in inventory and receivables in the amount of $200,000.
Assume there is no need for additional investment in building the land for the project. The firm's marginal tax rate is 35%, and its cost of capital is 10%.
To receive full credit on this assignment, please show all work, including formulae and calculations used to arrive at financial values.
Assignment Guidelines
Using the information in the assignment description:
Prepare a statement showing the incremental cash flows for this project over an 8-year period.
Calculate the payback period (P/B) and the net present value (NPV) for the project.
Answer the following questions based on your P/B and NPV calculations:
Do you think the project should be accepted? Why?
Assume the company has a P/B (payback) policy of not accepting projects with life of over 3 years.
If the project required additional investment in land and building, how would this affect your decision? Explain.
Your submitted assignment (130 points) must include the following:
A double-spaced Word document of 2-3 pages that contains your calculation values, your complete calculations, any formulae that you used, and your answers to the two questions listed in the assignment guidelines.
You must include your explanation of how you used Excel for your calculations if applicable.
Grading
You will be graded on the accuracy of your value calculations as well as your demonstrated understanding of payback periods, net present value, and cash flows.
Please submit your assignment.
For assistance with your assignment, please use your text, Web resources, and all course materials.
Individual Project Rubric
|
Grading Criteria
|
Percentage
|
|
Deliverable requirements addressed; understanding of material and writer's message and intent are clear.
|
40%
|
|
Calculation methods, where required, are contextually appropriate, fully explained, and presented in a manner that is easy to understand.
|
10%
|
|
External research incorporated in the paper, if any, supports the writer's position properly acknowledged and cited; direct quotations may not exceed 10% of the word count of the body of the assignment deliverable (excluded title page, abstract or table of contents if used, tables, exhibits, appendices, and reference page(s).) Inclusion of plagiarized content will not be tolerated and may result in adverse academic consequences.
|
5%
|
|
Critical thinking: Position is well-justified; logical flow; examples provided where appropriate.
|
20%
|
|
Structure: Includes introduction and conclusion; proper paragraph format; reads as a polished academic paper or professional presentation, as appropriate for the required assignment deliverable.
|
10%
|
|
Mechanical: No spelling, grammatical, or punctuation errors.
|
10%
|
|
APA: Deliverable is cited properly according to the APA Publication Manual (6th ed.).
|
5%
|