Consider a project to supply Detroit with 55,000 tons of machines screws annually for automobile production. You will need an initial $1,700,000 investment in threading equipment to get the project started. The project will last for 5 years.
The accounting department estimates that annual fix cost will be $520,000 and that variable costs should be $220 per ton; accounting will depreciate the initial fixed asset investment straight line to zero over the 5 year project life. It also estimates a salvage value of $300,000 after dismantling costs.
The marketing department estimates that the auto makers will let the contract at a selling price of $245 per ton. The engineering department estimates you will need an initial net working capital investment of 600,000. You require a 13 percent return and a face a marginal tax rate of 30 percent in this project.
Students will read the scenario and then prepare a 3-4 page analysis that addresses the following:
The assignment in finance is related to cash flow and net present value. This is a case study about Detroit, a screw manufacturing company. The company is planning to invest on a threading equipment and it wants to know how much of cash flow and net present value can be expected from this move. The company also wants to know the best, normal and worst case scenarios from this investment. All these have been calculated in MS Excel sheet and explained in a document.
Total Word count is 722.
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