Homework
For this individual homework, you will read the case, analyze it, and write a report to the owner, John Davidson, to present your recommendation on the business and investment decision. You may consider the following guided questions to prepare your report. If you have made assumption(s) as part of the case analysis, please include them in the report.
a. Using NPV analysis, should Magic Timber and Steel (Magic) purchase the new Delta finishing machine?
b. What other quantitative and/or qualitative factors need to be taken into consideration for the investment decision?
c. Sensitivity analysis (e.g. different discount rate, different selling price, change in maintenance cost)
d. What would be your recommendation(s)?
e. You may assume the discount rate as 11% and tax rate as 30%.
What are the requirements?
o A typed report of not more than 4 pages (excluding appendix)
Cash Flows:
Matrix:
o Salvage value, Repair, Maintenance, Scheduled service, Machine Sales
Delta:
o Machine investment, Labour savings, Electricity savings, Maintenance, Salvage value, Profit/Loss from sale
Non-Cash Flows:
Matrix:
o Depreciation (given in case)
Delta:
o Depreciation (10% per year of cost $140,000)
Cash Flow from Tax Impact:
Which of the above cash flows and non-cash flows could impact the cash flow for tax saving/payment?
o Savings (+ taxable income), Costs (- taxable income), Depreciation (Matrix, Delta)
Cash Flows for NPV:
Which of the above cash flows (including cash flows from tax impact) are relevant for purchase of Delta decision?
Format your homework according to the give formatting requirements:
a. The answer must be double spaced, typed, using Times New Roman font (size 12), with one-inch margins on all sides.
b. The response also includes a cover page containing the title of the homework, the course title, the student's name, and the date. The cover page is not included in the required page length.
c. Also include a reference page. The references and Citations should follow APA format. The reference page is not included in the required page length.