Help answer #3 and #4 
Dear consultants: This is to formally inform you that we have accepted your proposal. I am looking forward to your appraisal of our situation, as well as your recommendations. Please be sure to include negatives and positives, even for your own recommendations, so that we can make the best-informed decisions for our stockholders. And we would find it useful if you would provide a sensitivity analysis. Please note that we do not need vague suggestions. We need specifics and a good analysis of the costs and benefits of the alternatives. Please be sure to clarify your assumptions. Also be sure that your report addresses the following issues: 1. Industry and competitive analysis. 2. Evaluation of our overall strategy and organizational goals. 3. An evaluation of the projects. (Just use annual cash flows, not quarterly) 4. An evaluation of our financing options. As you conduct your analysis, please keep in mind that we have just changed company policy concerning how flotation costs are included in project evaluations. We now calculate a gross capital requirement to use in place of the initial investment number in a project analysis. The formula is Gross capital requirement = initial investment/(1- the weighted avg. flotation costs). The weights are the same as those used in calculating the WACC. Also note that we recently calculated our company beta to be 1.38. Further, note that the case says that first year outboard "sales were estimated to be $10,000 " (p. 4), but it should say " 10,000 units", not dollars. Here are some additional clarifications: 1. The bond index in Exhibit 2 is for Treasury bonds. 2. Our recent bond issue sold at a premium of $105. That means that it sold for $105 above the standard par value for a corporate bond of $1000. 3. The salvage values provided for land do not need to be adjusted for inflation because they are the specific dollar estimates at salvage time. However, the salvage values for buildings and equipment are given in current dollars. Therefore, they need to be adjusted for inflation. 4. For the front-end loader project, the 20% growth is through Year 5 . The 3% growth begins with Year 6. Dear consultants: This is to formally inform you that we have accepted your proposal. I am looking forward to your appraisal of our situation, as well as your recommendations. Please be sure to include negatives and positives, even for your own recommendations, so that we can make the best-informed decisions for our stockholders. And we would find it useful if you would provide a sensitivity analysis. Please note that we do not need vague suggestions. We need specifics and a good analysis of the costs and benefits of the alternatives. Please be sure to clarify your assumptions. Also be sure that your report addresses the following issues: 1. Industry and competitive analysis. 2. Evaluation of our overall strategy and organizational goals. 3. An evaluation of the projects. (Just use annual cash flows, not quarterly) 4. An evaluation of our financing options. As you conduct your analysis, please keep in mind that we have just changed company policy concerning how flotation costs are included in project evaluations. We now calculate a gross capital requirement to use in place of the initial investment number in a project analysis. The formula is Gross capital requirement = initial investment/(1- the weighted avg. flotation costs). The weights are the same as those used in calculating the WACC. Also note that we recently calculated our company beta to be 1.38. Further, note that the case says that first year outboard "sales were estimated to be $10,000 " (p. 4), but it should say " 10,000 units", not dollars. Here are some additional clarifications: 1. The bond index in Exhibit 2 is for Treasury bonds. 2. Our recent bond issue sold at a premium of $105. That means that it sold for $105 above the standard par value for a corporate bond of $1000. 3. The salvage values provided for land do not need to be adjusted for inflation because they are the specific dollar estimates at salvage time. However, the salvage values for buildings and equipment are given in current dollars. Therefore, they need to be adjusted for inflation. 4. For the front-end loader project, the 20% growth is through Year 5 . The 3% growth begins with Year 6
