Question
u have been asked to give a written analysis and recommendation to the management team of GRIZ, Inc.Your presentation should be professional and concise with
u have been asked to give a written analysis and recommendation to the management team of GRIZ, Inc.Your presentation should be professional and concise with a definitive recommendation for the management team to conside
This project involves a new type of widget.The management team has predicted that the proposed project would result in sales of 6,000 units of the widget per year at a price of $1,000 each.The variable costs are estimated at $400 per unit and the product would have a four-year life.
Fixed costs for the project would run $450,000 per year and there would be an initial investmentof $1,250,000 in manufacturing equipment.The equipment would be depreciated using MACRS over seven years.In year four, the equipment would be worth half of the purchase price.
GRIZ, Inc would invest $1,150,000 in net working capital at the start of the project.After that, net working capital requirements would be 25% of sales.Assume a 21% tax rate.
In prior analysis, the management team has used a minimum 2.5-year payback and 3-year discounted payback when determining the viability of projects.Assume a 9% discount rate.
The MACRS Table is below:
Year
MACRS Percentage
1 :14.29 %
2:24.49 %
3: 17.49 %
4 :12.49 %
Should we undertake the project?
Your analysis should include, at minimum, the following:
- A pro forma income statement for each year.
- Cashflows for the project
- Calculations including, Payback, Discounted Payback, Profitability Index, NPV, and IRR.
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