(mba 5220) (please type the answers) only question number 6 needs to be answered

nt Save to OneDrive MOT th Case Study & Cash Flow Analysis for Capital Budgetint Did that the nylon fiber's production factory ody and these facilities were to be used to produce polyesteret. He thout porta allocation of plant facilities, and on the sum of specity included in the proposed cash outlay for us outside in tried to rent it from Farmvillebec, it would darged the bothood of million Barnes replied tutvey werk.co costs were relevant to capital protons Lacy Bone contended that if the opportunity cost of capacity of million already spent for marketing should neslo wcost as well. Barnes responded that it was not becaus $1 million specifically to test the foot of polyester ber and the yasadated with the polyester project by Ropers asked if there had been any consideration of dawn capital try to support the increased sales. Barnes said the this project would million in additional working capital but it was not considered an outdowe would never leave the company, och QUESTIONS 1. Would you argue that the cost of 1 milion ready spent for mange treated as a cash outflow? 2 Calculate the payback, profitability indes, NPV and for this point och dows including the sales erosion in the land the dowiaduding the les erosion in Exhibit 2 respectively 3. Does NPV and IRR always offer consider what they will offer different results of this happens which are should NIVO IRR? Would you suggest that the net cash flowdiverted from sales ofy and nylon fibers be included in projects intowall the polyester rejected, a competitor is expected to introduce a la product which divert the same amount of sales from Famille Fibet. How would fit the decision by Farmville Fiber? 5. If the company decides to finance part of this project with debt check the interest payments of the new debt be considered as achoutlow? What is the appropriate treatment for salvar vakre at the end of a project? Internet Question to important to check outin reality what comprised dain the capitale unded proco. Mckinny Company red some good and Decidoni Tow Companood intent Decks and Me about the RS of Capital Project Check it out the che/strategy/how_come guid_demony and http://www.insey.com/Insights/corporate finance/making better decisions about the capital 405 PARTE CARS heshows from ales sonorosisting products (chibit2). Furthermore, the that the bows would be more appropriate because they were in fincah indows and protonshow must be estimated on an incremental ht Farmville Fiber Corporation Annual Net Cash Flows from the Aceptance of Polyester Project including those cash flows from sales erosion of existing products) Year Annual Net Cash Flows 32.900.000 3,000,000 2.100.000 3.200,000 3.300.000 3,400,000 3.500.000 3.600.000 3,700,000 10 3,800.000 Exhibit 2 Farmville Fiber Corporation Annual Net Cash Flows from the Acceptance of Polyester Project excluding those cash flows from sales erosion of existing products Year Annual Net Cash Flows 1 $2,600,000 2 2.700.000 3 2.400,000 2.900.000 5 3,000,000 6 3.100,000 7 3.200,000 8 2300.000 3.400.000 ased on your interes Case Study 6 CASH FLOW ANALYSIS FOR CAPITAL BUDGETING FARMVILLE FIBER CORPORATION Richard Orgain president of the Farmville Fiber Corporation called to onder meting of the Finance Committee on September 7, 2007, at 23p.m. The purpose of the ting was to review a520 million capital budget proposal for the production polyester fiber The company was currently a leading manufacturer of rayon and syion fiber fer tire ant in the United States. This market was shrinking howers, because of competit roads made by polyester fiber manuiacturers Top management of Farmvite Pier fat at an entry into polyester fiber could allow the company to preserve its leading market position in tire cord and also move it into the production of polyester fiber for her end ses On December 31, 2006, the Farmville Fiber Corporation of Virginia completed its twenty-seventh year of uninterrupted growth in sales and earnings per shume During the period 1980-2006, almost all of Farmville Fiber's sales consisted ofrayen and nylon fibers About 70 percent of these sales consisted of rayon and nylon tire cord for use in the production of automobile time. Polyester, the "thint generation made fiber alur rayon and nylon, had shown very rapid growth since the mid 1980 The meeting was attended by Richard Orgain, president of Farmville Fiber Lucy Bone a member of the board of directors Tessie Barnes vice president in curge of hew products and Ray Rogers, controller. Orgain called the meeting to onder gave a inet statement of its purpose, and then tumed the for over to Teole Bames Hames opened the meeting with a presentation of the cost and cash flow analysis for the polyester project. To make the discussion simple she passed aut copies of the pro ated cash flows to those present (ice Exhibits 1 and 21 The project called for an initial vestment of $19 million About $14 million would be used to buy machinery and guipment for the production of polyester fibet Sensition ould be needed to modify yon fiber production facilities which would be tied to produce polyester tibet and Si million would be used to cover the cost for market telling which was completed in November 1958. The project had an expected all of 10 years with some Sames cautioned that the annual cash flows in hibe should not be taken at face wobecuse they included those netosh flows that coultered from behind od nylon fibers. Thus, she also produced the annual cash flows that cluded those We on retirement