Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

n Incorporated is considering a six year project with the following information: Initial fixed asset investment $ 2 1 0 , 0 0 0 ;

n Incorporated is considering a six year project with the following information:
Initial fixed asset investment $210,000; straight line depreciation to zero over its
six year life, no residual value
Price: $180 per unit
Fixed costs per year: $720,000(before acquiring the fixed asset above)
Units sold per year: 25,500
Variable cost: $110 per unit
Tax rate: 40%
Required:
Using Excel, complete each of the following in the same Excel spreadsheet file:
1. Based on the information above, construct a proforma income statement for
Thomson Incorporated (be sure to include the newly acquired fixed asset). This is
the base case scenario. What is the operating cash flow (OCF) for each year?
2. Suppose that price, fixed costs, variable costs, and units sold are accurate to
within plus or minus 12%. Construct proforma income statements for both the
worst case scenario and the best case scenario. What is the operating cash flow
(OCF) for each year under each scenario?
3. Using an Excel formula, compute the Net Present Value for each of the three
scenarios (base case, worst case, and best case). Use a discount rate of 15% for
each scenario.
4. Using an Excel formula, compute the Internal Rate of Return for each of the
three scenarios (base case, worst case, and best case).
5. Thomson Incorporated will be financing the initial investment of $210,000 by
issuing a bond with a face value of $200,000. The bond pays an annual coupon
rate of 15% and will mature in six years. Using an Excel formula. Compute the cond yeild

Step by Step Solution

There are 3 Steps involved in it

Step: 1

blur-text-image

Get Instant Access to Expert-Tailored Solutions

See step-by-step solutions with expert insights and AI powered tools for academic success

Step: 2

blur-text-image

Step: 3

blur-text-image

Ace Your Homework with AI

Get the answers you need in no time with our AI-driven, step-by-step assistance

Get Started

Recommended Textbook for

International Finance Theory And Policy

Authors: Paul Krugman, Maurice Obstfeld, Marc Melitz

12th Global Edition

1292417005, 978-1292417004

More Books

Students also viewed these Finance questions

Question

To what kinds of data sets can the empirical rule be applied?

Answered: 1 week ago

Question

Identify ways that country culture influences global business.

Answered: 1 week ago

Question

Define human resource ethics.

Answered: 1 week ago

Question

Describe the human resource management profession.

Answered: 1 week ago