Good Afternoon Tutor,
I am reaching out as I am experiencing difficulty on a few questions, they are quite straight forward however this is out of my area of knowledge therefore any guidance/support/explanations help. I always ensure to give a GREAT RATING, THUMBS UP, AND THANK YOU.
14. Home Builder Supply, a retailer in the home improvement industry, currently operates saven retail outlets in the Maritimes. Management is contemplating building an eighth retail store across town from its most successful retail outlet. The company already owns the land for this store, which currently has an abandoned warehouse located on it Last month, the marketing department spent $15,000 on market research to determine the extent of customer demand for the new store. Now Home Builder Supply must decide whether to build and open the new store. Which of the following should be included as part of the incremental earings for the proposed rew store? a. The original purchase price of the land where the store will be located. b. The cost of demolishing the abandoned warehouse and dearing the lot. c. The loss of sales in the existing retail cutet, if customers who previously drove from Dartmouth to Halifax to shop at the existing outlet become customers of the new store instead d. The $15,000 in market research spent to evaluate customer demand. e. Construction costs for the new store. f. The value of the land if sold. g. Interest expense on the debt borrowed to pay construction costs. a. Should the original purchase price of the land where the store will be located be included in the incremental earings for the proposed new retail store? (Select from the drop-down manu.) b. Should the cost of demolishing the abandoned warehouse and clearing the lot be included in the incremental earnings for the proposed new retail store? (Select from the drop-down menu.) (2) c. Should the loss of sales in the existing retail outlet, if customers who previously drove from Dartmouth to Halifax to shop at the existing outlet become customers of the new store instead, be included in the incremental earnings for the proposed new retail store? (Select from the drop-down menu.) (3) d. Should the $15,000 in market research spent to evaluate customer demand be included in the incremental earnings for the proposed new retail store? (Select from the drop-down menu.) (4) e. Should the construction costs for the new store be included in the Incremental earnings for the proposed new retail store? (Select from the drop-down menu.) (5) 1. Should the value of the land if sold be included in the incremental earnings for the proposed new retail store? (Select from the drop-down menu.) (6) g. Should the interest expense on the debt borrowed to pay the construction costs be included in the incremental earnings for the proposed new retail store? (Select from the drop-down menu.) (7) (1) O Yes, this item should be included. (31 Yes, this item should be included. (2) O No, this ilem should not be included as part of the incremental earings when evaluating the proposa OYes, this item should be included. O No, this item should not be included. O No, this item should not be included as part of the incremental camnings when evaluating the proposal. (6) Yes, this item should be included. (4) Yes, this item should be included 15) O Yes, this item should be included. O No, this item should not be included. O No, this tem should not be included as part of the incremental earings when evaluating the proposa O No, this tem should not be included as part of the incremental camings when evaluating the proposal. (7) O No, this item should not be included Yes, this item should be included 15. You are a manager at Northern Fibre, which is considering expanding its operations in synthetic fibre manufacturing. Your boss comes into your office, drops a consultant's report on your desk, and complaine, "We owe these consultants $1.7 million for this report, and I am not sure their analysis makes sense. Before we spend the $29 milion on new equipment needed for this project, look it over and give me your opinion." You open the report and find the following estimates in milions of collars): 1 2 9 10 Sales revenue 31.000 18.600 31.000 18.800 31.000 18.600 31.000 18.600 -Cost of goods sold -Gross profit 12400 12400 12.400 12.400 - General, sales, and administrative expenses 2.320 2.320 2.320 2.320 -Deprecation 2.900 2.900 2.900 2.900 =Nct operating income 7.180 7.190 -Income tax 7.180 7.190 2513 2.513 4.667 4.657 2.513 2.513 -Net income 4,667 4.657 All of the estimates in the report seem correct. You note that the consultants used straight-ine depreciation for the new equipment that will be purchased today (year 0), which is what the accounting department recommended for financial reporting purposes. CRA allows a CCA rate of 45% on the equipment for tax purposes. The report condudes that because the project will increase earnings by $4.867 million per year for 10 years, the project is worth $46.67 million. You think back to your glory days in finance dass and realize there is more work to be done! First you note that the consultants have not factored in the fact that the project will require $3 million in working capital up front (year 3), which will be fully recovered in year 10. Next you see they have attributed $2.32 million of sailing, general and administrative expenses to the project, but you know that $1.16 million of this amount is overhead that will be incurred even if the project is not accepted. Finally, you know that accounting earnings are not the right thing to focus on a. Given the available information, what are the free cash flows in years through 10 that should be used to evaluate the proposed project? a. Given the available information, what are the free cash flows in years The free cash flow for year 0 is S The free cash flow for year 1 is $ The free cash flow for year 2 is $ The free cash flow for year 3 is $ The free cash flow for year 4 is $ The free cash flow for year 5 is $ The free cash flow for year 6 is $ The free cash flow for year 7 is $ The free cash flow for year 8 is $ The free cash flow for year 9 is $ The free cash flow for year 10 is $ through 10 that should be used to evaluate the proposed project? million. (Round to three decimal places, and enter a decrease as a regalive number.) million. (Round to three decimal places, and enter a decrease as a regative number.) million. (Round to three decimal places, and enter a decrease as a negative number.) million. [Round to three decimal places, and enter a decrease as a negative number.) million. (Round to three decimal places, and enter a decrease as a negative number.) million, (Round to three decimal places, and enter a decrease as a regative number.) milion. [Round to three decimal places, and enter a decrease as a negative number.) million. [Round to three decimal places, and enter a decrease as a negative number.) million. (Round to three decimal places, and enter a decrease as a negative number.) million. (Round to three decimal places, and enter a decrease as a negative number.) milion. (Round to three decimal places, and enter a decrease as a negative number.) 16. You are a manager at Northern Fibre, which is considering expanding its operations in synthetic fibre manufacturing. Your boss comes into your office, drops a consultant's report on your desk, and complains, "We owe these consultants $1.4 million for this report, and I am not sure their analysis makes sense. Before we spend the $30 million on new equipment needed for this project, look it over and give me your opinion." You open the report and find the following estimates (in millions of dollars): 1 2 9 10 Sales revenue 35.000 35.000 21.000 21.000 14.000 14.000 - Cost of goods sold 35.000 21.000 14.000 35.000 21.000 = Gross profit 14.000 - General, sales, and administrative expenses 2.400 2.400 2.400 2.400 - Depreciation 3.000 3.000 8.6000 3.000 8.6000 3.000 8.6000 = Net operating income 8.6000 - Income tax 3.01 3.01 3.01 5.590 3.01 5.590 = Net income 5.590 5.590 All of the estimates in the report seem correct. You note that the consultants used straight-line depreciation for the new equipment that will be purchased today (year 0), which is what the accounting department recommended for financial reporting purposes. CRA allows a CCA rate of 30% on the equipment for tax purposes. The report concludes that because the project will increase earnings by $5.590 million per year for ten years, the project is worth $55.9 million. You think back to your glory days in finance class and realize there is more work to be done! First you note that the consultants have not factored in the fact that the project will require $15 million in working capital up front (year 0), which will be fully recovered in year 10. Next you see they have attributed $2.4 million of selling, general and administrative expenses to the project, but you know that $1.2 million of this amount is overhead that will be incurred even if the project is not accepted. Finally, you know that accounting earnings are not the right thing to focus on! b. If the cost of capital for this project is 8%, what is your estimate of the value of the new project? b. If the cost of capital for this project is 8%, what is your estimate of the value of the new project? Value of project = $ million (Round to three decimal places.) 14. Home Builder Supply, a retailer in the home improvement industry, currently operates saven retail outlets in the Maritimes. Management is contemplating building an eighth retail store across town from its most successful retail outlet. The company already owns the land for this store, which currently has an abandoned warehouse located on it Last month, the marketing department spent $15,000 on market research to determine the extent of customer demand for the new store. Now Home Builder Supply must decide whether to build and open the new store. Which of the following should be included as part of the incremental earings for the proposed rew store? a. The original purchase price of the land where the store will be located. b. The cost of demolishing the abandoned warehouse and dearing the lot. c. The loss of sales in the existing retail cutet, if customers who previously drove from Dartmouth to Halifax to shop at the existing outlet become customers of the new store instead d. The $15,000 in market research spent to evaluate customer demand. e. Construction costs for the new store. f. The value of the land if sold. g. Interest expense on the debt borrowed to pay construction costs. a. Should the original purchase price of the land where the store will be located be included in the incremental earings for the proposed new retail store? (Select from the drop-down manu.) b. Should the cost of demolishing the abandoned warehouse and clearing the lot be included in the incremental earnings for the proposed new retail store? (Select from the drop-down menu.) (2) c. Should the loss of sales in the existing retail outlet, if customers who previously drove from Dartmouth to Halifax to shop at the existing outlet become customers of the new store instead, be included in the incremental earnings for the proposed new retail store? (Select from the drop-down menu.) (3) d. Should the $15,000 in market research spent to evaluate customer demand be included in the incremental earnings for the proposed new retail store? (Select from the drop-down menu.) (4) e. Should the construction costs for the new store be included in the Incremental earnings for the proposed new retail store? (Select from the drop-down menu.) (5) 1. Should the value of the land if sold be included in the incremental earnings for the proposed new retail store? (Select from the drop-down menu.) (6) g. Should the interest expense on the debt borrowed to pay the construction costs be included in the incremental earnings for the proposed new retail store? (Select from the drop-down menu.) (7) (1) O Yes, this item should be included. (31 Yes, this item should be included. (2) O No, this ilem should not be included as part of the incremental earings when evaluating the proposa OYes, this item should be included. O No, this item should not be included. O No, this item should not be included as part of the incremental camnings when evaluating the proposal. (6) Yes, this item should be included. (4) Yes, this item should be included 15) O Yes, this item should be included. O No, this item should not be included. O No, this tem should not be included as part of the incremental earings when evaluating the proposa O No, this tem should not be included as part of the incremental camings when evaluating the proposal. (7) O No, this item should not be included Yes, this item should be included 15. You are a manager at Northern Fibre, which is considering expanding its operations in synthetic fibre manufacturing. Your boss comes into your office, drops a consultant's report on your desk, and complaine, "We owe these consultants $1.7 million for this report, and I am not sure their analysis makes sense. Before we spend the $29 milion on new equipment needed for this project, look it over and give me your opinion." You open the report and find the following estimates in milions of collars): 1 2 9 10 Sales revenue 31.000 18.600 31.000 18.800 31.000 18.600 31.000 18.600 -Cost of goods sold -Gross profit 12400 12400 12.400 12.400 - General, sales, and administrative expenses 2.320 2.320 2.320 2.320 -Deprecation 2.900 2.900 2.900 2.900 =Nct operating income 7.180 7.190 -Income tax 7.180 7.190 2513 2.513 4.667 4.657 2.513 2.513 -Net income 4,667 4.657 All of the estimates in the report seem correct. You note that the consultants used straight-ine depreciation for the new equipment that will be purchased today (year 0), which is what the accounting department recommended for financial reporting purposes. CRA allows a CCA rate of 45% on the equipment for tax purposes. The report condudes that because the project will increase earnings by $4.867 million per year for 10 years, the project is worth $46.67 million. You think back to your glory days in finance dass and realize there is more work to be done! First you note that the consultants have not factored in the fact that the project will require $3 million in working capital up front (year 3), which will be fully recovered in year 10. Next you see they have attributed $2.32 million of sailing, general and administrative expenses to the project, but you know that $1.16 million of this amount is overhead that will be incurred even if the project is not accepted. Finally, you know that accounting earnings are not the right thing to focus on a. Given the available information, what are the free cash flows in years through 10 that should be used to evaluate the proposed project? a. Given the available information, what are the free cash flows in years The free cash flow for year 0 is S The free cash flow for year 1 is $ The free cash flow for year 2 is $ The free cash flow for year 3 is $ The free cash flow for year 4 is $ The free cash flow for year 5 is $ The free cash flow for year 6 is $ The free cash flow for year 7 is $ The free cash flow for year 8 is $ The free cash flow for year 9 is $ The free cash flow for year 10 is $ through 10 that should be used to evaluate the proposed project? million. (Round to three decimal places, and enter a decrease as a regalive number.) million. (Round to three decimal places, and enter a decrease as a regative number.) million. (Round to three decimal places, and enter a decrease as a negative number.) million. [Round to three decimal places, and enter a decrease as a negative number.) million. (Round to three decimal places, and enter a decrease as a negative number.) million, (Round to three decimal places, and enter a decrease as a regative number.) milion. [Round to three decimal places, and enter a decrease as a negative number.) million. [Round to three decimal places, and enter a decrease as a negative number.) million. (Round to three decimal places, and enter a decrease as a negative number.) million. (Round to three decimal places, and enter a decrease as a negative number.) milion. (Round to three decimal places, and enter a decrease as a negative number.) 16. You are a manager at Northern Fibre, which is considering expanding its operations in synthetic fibre manufacturing. Your boss comes into your office, drops a consultant's report on your desk, and complains, "We owe these consultants $1.4 million for this report, and I am not sure their analysis makes sense. Before we spend the $30 million on new equipment needed for this project, look it over and give me your opinion." You open the report and find the following estimates (in millions of dollars): 1 2 9 10 Sales revenue 35.000 35.000 21.000 21.000 14.000 14.000 - Cost of goods sold 35.000 21.000 14.000 35.000 21.000 = Gross profit 14.000 - General, sales, and administrative expenses 2.400 2.400 2.400 2.400 - Depreciation 3.000 3.000 8.6000 3.000 8.6000 3.000 8.6000 = Net operating income 8.6000 - Income tax 3.01 3.01 3.01 5.590 3.01 5.590 = Net income 5.590 5.590 All of the estimates in the report seem correct. You note that the consultants used straight-line depreciation for the new equipment that will be purchased today (year 0), which is what the accounting department recommended for financial reporting purposes. CRA allows a CCA rate of 30% on the equipment for tax purposes. The report concludes that because the project will increase earnings by $5.590 million per year for ten years, the project is worth $55.9 million. You think back to your glory days in finance class and realize there is more work to be done! First you note that the consultants have not factored in the fact that the project will require $15 million in working capital up front (year 0), which will be fully recovered in year 10. Next you see they have attributed $2.4 million of selling, general and administrative expenses to the project, but you know that $1.2 million of this amount is overhead that will be incurred even if the project is not accepted. Finally, you know that accounting earnings are not the right thing to focus on! b. If the cost of capital for this project is 8%, what is your estimate of the value of the new project? b. If the cost of capital for this project is 8%, what is your estimate of the value of the new project? Value of project = $ million (Round to three decimal places.)
