DESERT CUSION PAGE LAYOUT REFERENCES MALINGS REVIEW VIw NITRO PRO Problems for Assignment 1. Allied Corporation is considering a new expansion project, Project S. Project S is a new health-food product that Allied is thinking of introducing to the market. Along the way. Allied's finance staff has received a lot of information, the lighlights of which are summarized below: Project S will require Allied to purchase $900,000 of equipment in 2013 (1 = 0). Inventory will increase by $175,000 and accounts payable will rise by $75,000. All other working capital components will stay the same, so the change in net operating working capital (NOWC) is $100,000 at t = 0. The project will last for 4 years. The company forecasts that they will sell 2.685,000 units in 2014, 2.600.000 units in 2015. 2,525.000 units in 2016, and units in 2017. Each unit will sell for $2. The fixed cost of producing the product is $2 million each year, and the variable cost of producing each unit will rise from $1.018 in 2014 to S in 2017. (assume it is $1.078 in 2015 and $1.046 in 2016) The company will use accelerated depreciation and write off 33 of the basis during Year 1, 45 in year 2. 15% in Year 3 and 7 in Year 4. When the project is completed in 2017 (t = 4), the company expects it will be able to salvage the equipment for $50,000, and it expects that it will fully recover the NOWC of $100,000. The estir tax rate is 40%. Based on the perceived risk, the project's WACC is estimated to be 10%. 71 WORDS OF DESERT CUSION PAGE LAYOUT REFERENCES MALINGS REVIEW VIw NITRO PRO Problems for Assignment 1. Allied Corporation is considering a new expansion project, Project S. Project S is a new health-food product that Allied is thinking of introducing to the market. Along the way. Allied's finance staff has received a lot of information, the lighlights of which are summarized below: Project S will require Allied to purchase $900,000 of equipment in 2013 (1 = 0). Inventory will increase by $175,000 and accounts payable will rise by $75,000. All other working capital components will stay the same, so the change in net operating working capital (NOWC) is $100,000 at t = 0. The project will last for 4 years. The company forecasts that they will sell 2.685,000 units in 2014, 2.600.000 units in 2015. 2,525.000 units in 2016, and units in 2017. Each unit will sell for $2. The fixed cost of producing the product is $2 million each year, and the variable cost of producing each unit will rise from $1.018 in 2014 to S in 2017. (assume it is $1.078 in 2015 and $1.046 in 2016) The company will use accelerated depreciation and write off 33 of the basis during Year 1, 45 in year 2. 15% in Year 3 and 7 in Year 4. When the project is completed in 2017 (t = 4), the company expects it will be able to salvage the equipment for $50,000, and it expects that it will fully recover the NOWC of $100,000. The estir tax rate is 40%. Based on the perceived risk, the project's WACC is estimated to be 10%. 71 WORDS OF
