Normal No Spac. Heading Paragraph Styles Font FINA 331 Capital Budgeting Project: In this assignment you take the position of an analyst working within a large clothing designer / manufacturer / retailer. Your company has developed an e-ink usable in cloth and it intends to maintain the recipe and production process as a trade secret. This, combined with the somewhat complicated nature of the technology, requires that rather than outsourcing the production of gaments including the technology your firm will be required to manufacture them in house. You are tasked with determining which of three potential geographic locations for the new plant best serve the interests of the firm and its stakeholders or if e-ink products should not be brought to market based on revenue and cost projections. In addition there is potential in some locations to more forward with some of the fixm's sustainability agenda and source the power from the plant using wind or solar energy You estimate that your product will have a six-year life span, and the equipment used to manufacture the project falls into the MACRS 7-year class. The resalting M(ACRS depzeciation percentages for years 1 through 8, tespectrely, are 14.29%, 2449%, 17.49%, 12.49%, 8.93%, 892%, 893%, and 4.46%, Your venture would require a capital inrestment of $140,000,000 in equipment, plus $10,000,000 in installation costs. The ventare will increase accounts receivable and inventories of $35,000,000. At the end of the sx-year lfe span of the venture, you estimate that the equipment could be sold at a $50,000,000 salvage value Your venture would incur fixed costs of $10,000,000 per year, while the vaniable costs of the venture would typically equal 30 percent of revenues depending on the location of the plant. You are projecting that revenues generated by the project would equal $40,000,000 in year 1, $150,000,000 in year 2, $180,000,000 in year 3, $160,000,000 in year 4, 5110,000,000 in year 5, and $80,000,000 in year 6. The baseline WACC or discount rate is 19.4%, but ths may be adjusted depending on the nsk of the locaton 1. Compute the NPV for the Project for each of the thee locations. (75 points) 2. Prepaxe a report for the fixm's CEO indicating which loeation if any should be accepted and why, including careful explanation of tradeoffs and concerns in non-financial factors. (40 s FINA 331 Capital Budgeting Project-Word Sign in ASh Insert Design LayoutReferences Mailings Review View File Home Garamond 1A A Aa 1 Normal No Spac.... Heading 1 B 1 u.axx, x' a-y.A-la-H.!? | 9T L.en. aste Font Paragraph Styles pboard r Manaus, Brazil The second potential locaton for the manufactuong plant s in Manaus Baal Manaus is in the Amazon River basin at the confluence of two major tivers. It is a large, booming city of orer a million tesidents. The Brazilian gorenment is concemed about the economic development of nual Brasil and has offered generous tax incentives to businesses located within the Manaus Free Trade Zone (FTZ) Building the factory in Manaus will help provide economie opportunities for local residents, although the Brazilian economy is g ung quite well and gromng qu c v Banis currently expenenang 7.1% unemployment, gnuficantly less the United States. Due to distance the New York office is concerned that qualty oversight wl be difficult and being a hurry brand they are sensitive to having tamshed. They estimate a 5% chance that guality issues wall prevent the product from going forward gter the factory is built (in that case no evenues wall be generated and the plant sold at salvage value ($50,000,000) The regulatory environment is table in Beazl especially in the F1Z_jbut the Continental US is probably safer. Management sees the factory bang in such a hot econ one grouth area aplus. Baal has a 34% corporate tax ate but companies operating out of the Manaus FTZ recere a 75% exclusion. US corporate acome taxes will need to be paid when those eamings are repatiated but often this decision can be delayed until a tax holiday is granted Fixed costs ace $10,000,000 per year Manaus and due to lower wages, rtable costs are 30% of terenues. A major concesn with the Manaus facility is potential indirect damage to the Beazilian rainforest Manaus is located near major rainforest areas and economic deforestation The plant itvelf wall not ham any forest noc w'll any buaildings associated with it, but the public relations officeis concened perceptons of economie damage may harm the beand The potential exists development of the region will generally lead to to wock in partnership with local governments to develop a nature preserre of some kind but the fim has not inmrestigated this option in any detail lanagement peceires this location to be effechively siskier than the other two and suggests a proyect specific increase in WACC of 0.9%. This facity also has a e greens opt on although wind energy s not plentful there. For a present value of S22 000,000 70% of the plants olar panels manufactued in China This would significantly increase the land use of the project honerer Due to the increased task of thai octon the standard denabon of the retenue, ised oost, and ranable costs are 15%, $1,000,000, and 10% respecte ely Normal No Spac. Heading Paragraph Styles Font FINA 331 Capital Budgeting Project: In this assignment you take the position of an analyst working within a large clothing designer / manufacturer / retailer. Your company has developed an e-ink usable in cloth and it intends to maintain the recipe and production process as a trade secret. This, combined with the somewhat complicated nature of the technology, requires that rather than outsourcing the production of gaments including the technology your firm will be required to manufacture them in house. You are tasked with determining which of three potential geographic locations for the new plant best serve the interests of the firm and its stakeholders or if e-ink products should not be brought to market based on revenue and cost projections. In addition there is potential in some locations to more forward with some of the fixm's sustainability agenda and source the power from the plant using wind or solar energy You estimate that your product will have a six-year life span, and the equipment used to manufacture the project falls into the MACRS 7-year class. The resalting M(ACRS depzeciation percentages for years 1 through 8, tespectrely, are 14.29%, 2449%, 17.49%, 12.49%, 8.93%, 892%, 893%, and 4.46%, Your venture would require a capital inrestment of $140,000,000 in equipment, plus $10,000,000 in installation costs. The ventare will increase accounts receivable and inventories of $35,000,000. At the end of the sx-year lfe span of the venture, you estimate that the equipment could be sold at a $50,000,000 salvage value Your venture would incur fixed costs of $10,000,000 per year, while the vaniable costs of the venture would typically equal 30 percent of revenues depending on the location of the plant. You are projecting that revenues generated by the project would equal $40,000,000 in year 1, $150,000,000 in year 2, $180,000,000 in year 3, $160,000,000 in year 4, 5110,000,000 in year 5, and $80,000,000 in year 6. The baseline WACC or discount rate is 19.4%, but ths may be adjusted depending on the nsk of the locaton 1. Compute the NPV for the Project for each of the thee locations. (75 points) 2. Prepaxe a report for the fixm's CEO indicating which loeation if any should be accepted and why, including careful explanation of tradeoffs and concerns in non-financial factors. (40 s FINA 331 Capital Budgeting Project-Word Sign in ASh Insert Design LayoutReferences Mailings Review View File Home Garamond 1A A Aa 1 Normal No Spac.... Heading 1 B 1 u.axx, x' a-y.A-la-H.!? | 9T L.en. aste Font Paragraph Styles pboard r Manaus, Brazil The second potential locaton for the manufactuong plant s in Manaus Baal Manaus is in the Amazon River basin at the confluence of two major tivers. It is a large, booming city of orer a million tesidents. The Brazilian gorenment is concemed about the economic development of nual Brasil and has offered generous tax incentives to businesses located within the Manaus Free Trade Zone (FTZ) Building the factory in Manaus will help provide economie opportunities for local residents, although the Brazilian economy is g ung quite well and gromng qu c v Banis currently expenenang 7.1% unemployment, gnuficantly less the United States. Due to distance the New York office is concerned that qualty oversight wl be difficult and being a hurry brand they are sensitive to having tamshed. They estimate a 5% chance that guality issues wall prevent the product from going forward gter the factory is built (in that case no evenues wall be generated and the plant sold at salvage value ($50,000,000) The regulatory environment is table in Beazl especially in the F1Z_jbut the Continental US is probably safer. Management sees the factory bang in such a hot econ one grouth area aplus. Baal has a 34% corporate tax ate but companies operating out of the Manaus FTZ recere a 75% exclusion. US corporate acome taxes will need to be paid when those eamings are repatiated but often this decision can be delayed until a tax holiday is granted Fixed costs ace $10,000,000 per year Manaus and due to lower wages, rtable costs are 30% of terenues. A major concesn with the Manaus facility is potential indirect damage to the Beazilian rainforest Manaus is located near major rainforest areas and economic deforestation The plant itvelf wall not ham any forest noc w'll any buaildings associated with it, but the public relations officeis concened perceptons of economie damage may harm the beand The potential exists development of the region will generally lead to to wock in partnership with local governments to develop a nature preserre of some kind but the fim has not inmrestigated this option in any detail lanagement peceires this location to be effechively siskier than the other two and suggests a proyect specific increase in WACC of 0.9%. This facity also has a e greens opt on although wind energy s not plentful there. For a present value of S22 000,000 70% of the plants olar panels manufactued in China This would significantly increase the land use of the project honerer Due to the increased task of thai octon the standard denabon of the retenue, ised oost, and ranable costs are 15%, $1,000,000, and 10% respecte ely