Wilson Machine Tools, Inc., a manufacturer of fabricated metal products, is considering building a high-tech computer-controlled plant. The following information are provided for the plant: Expected life: 3 years; MARR: 30%, Tax Rate: 40%; Capital Gains, tCG, 20% Working capital: $0.50 million required in year 1 of the project Equipment (CCA Rate 10%): Cost $3.0 million, plus site preparation, installation, and wiring: 0.25 million. Salvage value, $1.0 million Building (CCA Rate 20%): Cost $1.0 million, salvage value $0.75 million Land: Cost $3.0 million, salvage value, $3.75 million Annual production costs: o Materials: $100,000 in year 1; increasing by 5% per year during the life of the project. o Labour: $500,000 in year 1; increasing by 3% per year during the life of the project. O Energy: $250,000 in year 1; increasing by 4% per year during the life of the project. Annual Marketing costs: 5% of the total annual production costs. Annual Revenues: $3.5 million in year 1, increasing by 10% per year during the life of the project. Financing: o Capital Structure: Debt Ratio: 40% o Debt financing: Term loan 65%; annual interest rate 12%; for 4 years. Loan to be paid based on equal repayment of principal method, PLUS yearly interest on the unpaid yearly balance. Bonds. See next page for details. Bonds mature at the end of year 5. The bonds will be repurchased at the end of the project to maintain the Debt Ratio. o Equity financing: . Retained earnings: $2.5 million . Common share (stock). See next page for details. The shares will be repurchased at the end of the project to maintain the Debt Ratio. a) Develop a Net Income Statement (only the statement please-no supporting information) b) Develop a Net Cash Flow statement (only the statement please-no supporting information) c) Use the PW criterion to decide if the company should undertake this project. T Bonds Floatation Cost Rate Annual Interest Rate Bond Face Value at Maturity Bond Issued Price 2.75% 10% 1,000 985 $ $ Common Shares Share Issued Price Floatation Cost Rate Annual Dividend per Share Share Market Price at year N 33 4.50% 1.25 35 $ $ Wilson Machine Tools, Inc., a manufacturer of fabricated metal products, is considering building a high-tech computer-controlled plant. The following information are provided for the plant: Expected life: 3 years; MARR: 30%, Tax Rate: 40%; Capital Gains, tCG, 20% Working capital: $0.50 million required in year 1 of the project Equipment (CCA Rate 10%): Cost $3.0 million, plus site preparation, installation, and wiring: 0.25 million. Salvage value, $1.0 million Building (CCA Rate 20%): Cost $1.0 million, salvage value $0.75 million Land: Cost $3.0 million, salvage value, $3.75 million Annual production costs: o Materials: $100,000 in year 1; increasing by 5% per year during the life of the project. o Labour: $500,000 in year 1; increasing by 3% per year during the life of the project. O Energy: $250,000 in year 1; increasing by 4% per year during the life of the project. Annual Marketing costs: 5% of the total annual production costs. Annual Revenues: $3.5 million in year 1, increasing by 10% per year during the life of the project. Financing: o Capital Structure: Debt Ratio: 40% o Debt financing: Term loan 65%; annual interest rate 12%; for 4 years. Loan to be paid based on equal repayment of principal method, PLUS yearly interest on the unpaid yearly balance. Bonds. See next page for details. Bonds mature at the end of year 5. The bonds will be repurchased at the end of the project to maintain the Debt Ratio. o Equity financing: . Retained earnings: $2.5 million . Common share (stock). See next page for details. The shares will be repurchased at the end of the project to maintain the Debt Ratio. a) Develop a Net Income Statement (only the statement please-no supporting information) b) Develop a Net Cash Flow statement (only the statement please-no supporting information) c) Use the PW criterion to decide if the company should undertake this project. T Bonds Floatation Cost Rate Annual Interest Rate Bond Face Value at Maturity Bond Issued Price 2.75% 10% 1,000 985 $ $ Common Shares Share Issued Price Floatation Cost Rate Annual Dividend per Share Share Market Price at year N 33 4.50% 1.25 35 $ $
