:Raymobile Scooter Line Capital

Budgeting Example.

$$ Prepare a capital Budgeting Desition on excel sheet for a

firm in the $34\%$ marginal tax bracket with a

$15\%$ of required rate of return or cost of

capital. The project we are considering

involves the introduction of a new electronic

scooter line by Raymobile.

Cost of new plant and equipment: $ $9,700,000$

$$ Shipping and installation cost: $ $300,000$

$$ Unit Sales: Year Unit sold

$150,000$

$2100,000$

$3100,000$

$470,000$

$550,000$

$$ Sales price per unit: $$150/$ unit in year $1-4,$ $$130/$ unit in year $5$

$$ Variable cost per unit: $$80/$ unit

$$ Annual fixed costs: $ $500,000$

$$ Working Capital Requirement: There will be an initial working capital

requirement of $ $100,000$ just to get production started. Then, for each year $,$

the total investment in NWC will be equal to $10\%$ of the dollar value of sales

for that year. Thus, the investment in working capital will increase during

years $1$ through $3,$ then decrease in year $4.$ Finally, all working capital is

liquidated at the termination of the project at the end of year $5.$

$$ The Depretiation Method: We used the simplified straight$-$line method over

$5$ years. It is assumed that the plant and equipment will have no salvage

value after $5$ years. Thus annual depreciation is $$2,000,000/$ year for $5$ years