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oo Sprint F 11:38 AM T 18%, Home Page 2. Anthony Company's capital budgeting committee is evaluating a capital ctponditare proposal for the prod uction of high definition television receiver to be sold as an add-on feature personal computers The proposal calls for an independent onntractor construct the necessary facilities by December 3I.2014, at a total cost of S250,000, Payment for all will be made on that date. An additional S50,000 cash will also be made available 31, 2014, for working capital to support sales and production activities. anagement anticipates that the eceiver has a limited market lides there is a high probability that by 2021 all PCs will have built-in high definition receivers Aecordingly, the proposal specifies that product ion will cease on December 31, 2020. The investment in working capital will be recovered oes that date, and the production facilities will be sold for S30A00. Predicted net cash inflows from operations for 2015 through 2020 are as follows: 2015 $100,000 2016 2017 2018 2019 Anthony Company has a time value of money of I4 percent For capital budgeting purposes, all cash flows are assumed to occur at the end ofeach year. Page 1 of 4 Required Evaluate the capital expenditure proposal using the net present valae method. Should Anthony accept the proposal? b Assume that the capital expenditure proposal is accepted, but construction delays caused by labor problems and difficulties in obtaining thenecessary comtruction permits delay the ion of the project. Payments totaling S200,000 were made to the construction company on December 31, 2014 for that year's However, completion scheduled for December 3I, 2015, and an additional SI00000 be to complete If the project is continued, the additional S100M00 will be paid at the end of 2015, and the plant will begin operations on January I.2016. Because of the cost ovemuns, the capital budgeting committee requests a reevaluation of the project in early 2015.before agreeing to any additional expenditures After much effort, the following revised of net operating cash inflows are 2016 $120.000 2018 2019 The working capital investment and disinvestment and the plant alvage values have not changed, except that the cash for working capital would now be made anailable on 31, 2015. Usethe net present value method to reevaluate the initial decision to accept the proposal. Given the information currently available about the project, should it have been accepted in 2014? Determine the net present value as ofDecember 31. 2014, assuming management has not commitmed Anthony to the proposal) e. Giver the situation thatesisus in early 2015, should management continue or cancelthe project Assume that the faci salvage value of S50000. Hint: Assume that the decision isbeing made on January 2015. oo Sprint F 11:38 AM T 18%, Home Page 2. Anthony Company's capital budgeting committee is evaluating a capital ctponditare proposal for the prod uction of high definition television receiver to be sold as an add-on feature personal computers The proposal calls for an independent onntractor construct the necessary facilities by December 3I.2014, at a total cost of S250,000, Payment for all will be made on that date. An additional S50,000 cash will also be made available 31, 2014, for working capital to support sales and production activities. anagement anticipates that the eceiver has a limited market lides there is a high probability that by 2021 all PCs will have built-in high definition receivers Aecordingly, the proposal specifies that product ion will cease on December 31, 2020. The investment in working capital will be recovered oes that date, and the production facilities will be sold for S30A00. Predicted net cash inflows from operations for 2015 through 2020 are as follows: 2015 $100,000 2016 2017 2018 2019 Anthony Company has a time value of money of I4 percent For capital budgeting purposes, all cash flows are assumed to occur at the end ofeach year. Page 1 of 4 Required Evaluate the capital expenditure proposal using the net present valae method. Should Anthony accept the proposal? b Assume that the capital expenditure proposal is accepted, but construction delays caused by labor problems and difficulties in obtaining thenecessary comtruction permits delay the ion of the project. Payments totaling S200,000 were made to the construction company on December 31, 2014 for that year's However, completion scheduled for December 3I, 2015, and an additional SI00000 be to complete If the project is continued, the additional S100M00 will be paid at the end of 2015, and the plant will begin operations on January I.2016. Because of the cost ovemuns, the capital budgeting committee requests a reevaluation of the project in early 2015.before agreeing to any additional expenditures After much effort, the following revised of net operating cash inflows are 2016 $120.000 2018 2019 The working capital investment and disinvestment and the plant alvage values have not changed, except that the cash for working capital would now be made anailable on 31, 2015. Usethe net present value method to reevaluate the initial decision to accept the proposal. Given the information currently available about the project, should it have been accepted in 2014? Determine the net present value as ofDecember 31. 2014, assuming management has not commitmed Anthony to the proposal) e. Giver the situation thatesisus in early 2015, should management continue or cancelthe project Assume that the faci salvage value of S50000. Hint: Assume that the decision isbeing made on January 2015
