Richard Pitkin, CFO of Draper Corporation, was concerned by the long-term prospects for the Synectics product...
Fantastic news! We've Found the answer you've been seeking!
Question:
Transcribed Image Text:
Richard Pitkin, CFO of Draper Corporation, was concerned by the long-term prospects for the Synectics product line. The product line had performed well historically, but the impending loss of its patent position seemed certain to attract new entrants and result in lower product prices and flat unit sales through the year of 2004. Management was considering the elimination of the product line as of year-end 1997. Would you recommend that the Synectics product line be discontinued at the beginning of 1998? 1998 1999 2000 2001 2002 2003 2004 2005 Sales Cash Cost of Goods Depreciation Gross profit $20,600,000 10,300,000 1,124,000 $9,176,000 $21,000,000 10,609,000 1,204,000 $9,187,000 $21,150,000 $21,250,000 $21,250,000 11,592,741 1,504,000 $8,153,259 8,114,919 $38,341 $20,000,000 10,000,000 $21,000,000 11,940,523 10,927,270 11,255,088 1,057,000 8,943,000 7,000,000 1,943,000 1,404,000 $8,590,912 1,304,000 1,504,000 $8,918,730 $7,555,477 8,358,366 7,210,000 $1,966,000 $786,400 $1,179,600 Sell, General and Admin. 7,426,300 7,649,089 7,878,562 EBIT $1,760,700 S1,269,641 $712,350 Tax @ 40% EBIAT (Earning Before interest After Tax) 777,000 $1,166,000 $704,280 $1,056,420 $507,856 $761,785 $284,940 $427,410 $15,336 $23,004 (S802,889) ($321,156) (S481,733) Free Cash Flows are 1998 1999 2000 2001 2002 2003 2004 2005 $1,166,000 1,057,000 (400,000) ($108,000) $1,715,000 $8,846,413 $1,179,600 1,124,000 (400,000) ($111,000) $1,792,600 $1,056,420 1,204,000 (400,000) (S79,000) $1,781,420 $761,785 1,304,000 (400,000) ($40,000) $1,625,785 $427,410 1,404,000 (300,000) ($33,000) $1,498,410 $23,004 1,504,000 (200,000) ($17,000) $1,310,004 ($481,733) 1,504,000 SO NOPAT (Net Operating Profit after tax) Add: Depreciation Less Capex Less change in working capital Free Cash Flows PV of free cash flow $23,000 $1,045,267 $3,957,000 $3,957,000 If we discontinue now Sale of fixed assets 3,000,000 1,600,000 3,592,000 8,192,000 Tax benefit on loss Recovery of working capital Net cash flow Richard Pitkin, CFO of Draper Corporation, was concerned by the long-term prospects for the Synectics product line. The product line had performed well historically, but the impending loss of its patent position seemed certain to attract new entrants and result in lower product prices and flat unit sales through the year of 2004. Management was considering the elimination of the product line as of year-end 1997. Would you recommend that the Synectics product line be discontinued at the beginning of 1998? 1998 1999 2000 2001 2002 2003 2004 2005 Sales Cash Cost of Goods Depreciation Gross profit $20,600,000 10,300,000 1,124,000 $9,176,000 $21,000,000 10,609,000 1,204,000 $9,187,000 $21,150,000 $21,250,000 $21,250,000 11,592,741 1,504,000 $8,153,259 8,114,919 $38,341 $20,000,000 10,000,000 $21,000,000 11,940,523 10,927,270 11,255,088 1,057,000 8,943,000 7,000,000 1,943,000 1,404,000 $8,590,912 1,304,000 1,504,000 $8,918,730 $7,555,477 8,358,366 7,210,000 $1,966,000 $786,400 $1,179,600 Sell, General and Admin. 7,426,300 7,649,089 7,878,562 EBIT $1,760,700 S1,269,641 $712,350 Tax @ 40% EBIAT (Earning Before interest After Tax) 777,000 $1,166,000 $704,280 $1,056,420 $507,856 $761,785 $284,940 $427,410 $15,336 $23,004 (S802,889) ($321,156) (S481,733) Free Cash Flows are 1998 1999 2000 2001 2002 2003 2004 2005 $1,166,000 1,057,000 (400,000) ($108,000) $1,715,000 $8,846,413 $1,179,600 1,124,000 (400,000) ($111,000) $1,792,600 $1,056,420 1,204,000 (400,000) (S79,000) $1,781,420 $761,785 1,304,000 (400,000) ($40,000) $1,625,785 $427,410 1,404,000 (300,000) ($33,000) $1,498,410 $23,004 1,504,000 (200,000) ($17,000) $1,310,004 ($481,733) 1,504,000 SO NOPAT (Net Operating Profit after tax) Add: Depreciation Less Capex Less change in working capital Free Cash Flows PV of free cash flow $23,000 $1,045,267 $3,957,000 $3,957,000 If we discontinue now Sale of fixed assets 3,000,000 1,600,000 3,592,000 8,192,000 Tax benefit on loss Recovery of working capital Net cash flow
Expert Answer:
Related Book For
Posted Date:
Students also viewed these finance questions
-
Would you recommend that Georgiy Zhpkharev be moved from his current role as a risk advisor to the portfolio management team to become part of the risk management team as the manager responsible for...
-
Would you recommend that Gandor participate in the joint venture? Explain.
-
For what kinds of projects would you recommend that a fixed-price contract be used? For what kinds of projects would you recommend that a cost-plus contract be used?
-
Consider a regulators objective formulized as: (a) Show that at most one of the four constraints (incentive compatibility and participation) can be binding in this case, that the high cost firms fee...
-
a. Find a value for e such that 95% of the apples in Exercise 7. 50 are within e units of the mean, 2.63. That is, find e such that b. Find a value for E such that 95% of the samples of 100 apples...
-
Consider the situation described in Exercise 10-61. Suppose that p1 = 0.05 and p2 = 0.02. (a) With the sample sizes given here, what is the power of the test for this two-sided alternate? (b)...
-
Eco-control has five procedural steps.Think of an important corporate environmental intervention (e.g. emission of waste-water). With reference to this corporate environmental intervention, explain...
-
On 13 September 20X1, Nitish Corporations board of directors moved the companys operations into a newly constructed building and declared its old building available for sale. The original cost of the...
-
Amanda's tech startup, "EcoInnovate," has recently launched a revolutionary solar panel technology, designed to significantly enhance energy efficiency for homes and businesses alike. This new...
-
Irreversible first-order reaction in a continuous reactor, a well-stirred reactor of volume V is initially completely filled with a solution of solute A in a solvent S at concentration C AO . At time...
-
Large Ltd owns 100% of the shares of Small Ltd. These shares were acquired on 1 July 2019 for $1 million when the shareholders funds of Small Ltd were: Share capital $500,000 Retained earnings...
-
Leveraged Investing with Eligible Dividends $50,000 Cash purchase + $50,000 borrowed funds at 4.95% 12 month holding period Eligible monthly dividend of $0.07/share Purchase price of $25.00 Sale...
-
What will be a great strategic recommendation to overcome Buyer Power for T-Mobile. The strategic recommendation needs to be something that has not been proposed before. Any suggestions will help.
-
(b) (i) (ii) (iii) (iv) A symmetrical double-wedge aerofoil has a chord of 50 cm and a thickness of 10%. It is tested in a wind tunnel at Mach 2.9 at an angle of incidence of 3.5 degrees. Use...
-
2. Compute 1/1 + 1/2 + 1/3 + ... + 1/999 + 1/1000. 3. Compute 1 + a/1! + a/2! + a/3! + ... + a100/100!. (Note: cumprod is useful here. Do not use the function factorial.) Compare the result with exp...
-
The Playfair cipher with keyword SWITZERLAND and matrix starting at the top center given below 71 7 71 71 71 . Find the message. 71 . K 71 71 K 71 71 were used to create the following ciphertext: ....
-
There are several factors influencing warehouse operations. Advise Takealot on the importance of considering the levels of automation and information technology functionality when designing and...
-
Rewrite Programming Exercise 7.5 using streams. Display the numbers in increasing order. Data from Programming Exercise 7.5 Write a program that reads in 10 numbers and displays the number of...
-
Explain why capacity planning is important to a business.
-
Howard Plastics produces plastic containers for use in the food packaging industry. Last year its average monthly production included 20,000 containers produced using one shift five days a week with...
-
Perfect Furniture is a manufacturer of kitchen tables and chairs. The company is currently deciding between two new methods for making kitchen tables. The first process is estimated to have a fixed...
-
A sample of convenience is never acceptable. In Exercises 1316, determine whether the statement is true or false. If the statement is false, rewrite it as a true statement.
-
A police department conducted a survey in which police officers interviewed members of their community to ask their opinions on the effectiveness of the police department. The police chief reported...
-
Observational studies are generally more reliable than randomized experiments. In Exercises 1116, determine whether the statement is true or false. If the statement is false, rewrite it as a true...
Study smarter with the SolutionInn App