Question
I need help with the Road King Trucks spreadsheet. I already know the WACC is 8.92% The sales forecast is based on projected levels of
I need help with the Road King Trucks spreadsheet. I already know the WACC is 8.92%
The sales forecast is based on projected levels of demand. All the numbers are expressed in todays dollars. The forecasted average inflation per year is 2.5% . Price per bus $220,000 Units sold per year 11,000 Labor cost per bus $50,000 Components & Parts per bus $95,000 Selling General & Administrative (fixed) $250,000,000 NOTE: Average warranty cost per year per bus for the first five years is $1,000. The present value of this cost will be used as a cost figure for each bus. Afterwards, the bus operator will become responsible the repairs on the buses. The buses can be produced for twenty years. Afterwards, the designs become obsolete. Engine choices Engine Detroit engines Marcus engines Price per engine, including installation $25,000 Detroit Engine $18,000 Marcus Engine. Average annual warranty cost per year for five years. Afterwards, the bus operator will become responsible for the repairs on the buses.* $500 Detroit engine $2,000 Marcus engine. The chosen engine will be installed in every bus and will become a cost figure for each bus. NOTE: The engine manufacturers are not providing Road King Trucks with any warranty. However, Road King Trucks will provide a warranty to its customers. After the initial five years, the bus operators may purchase an extended warranty from any insurance company that offers such packages.
To implement the project, the firm has to invest funds as shown in the following table: Year 0 Year 1 Year 2 $1 billion* $100 million* $100 million* * Road King Trucks estimated that it would cost a total of $1 billion to build the factory and purchase the necessary equipment to produce the buses. The other $200 million investment, divided equally in years 1 and 2, is for non-depreciable labor training costs. Such investment is treated as regular business expenses. Straight line depreciation will be used for the sake of simplicity. To facilitate the operation of manufacturing the transit buses, the company will have to allocate funds to net working capital (NWC) equivalent to 10% of annual sales. The investment in NWC will be recovered at the end of the project. The equipment will be sold for salvage at about $10,000,000 at the end of the project.
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