that is studying a 10 year investment opportunity. XYZ Inc. has
just conducted a $20 million feasibility study that considers
introducing a new line of products, that will include 5G enabled
devices. To do so, XYZ Inc. will need to invest in technology and
equipment of $48 million. In addition, they will require
development expenses that have to be paid upfront. Precisely, a sum
of $5.5 million for R&D and $3.5 million for marketing
expenses. During the first 4 years, the marketing group expects
annual sales to grow my 4 percent. They forecast the initial year
to witness $110 million in sales. However, after the fourth year,
they expect sales to drop by 7% annually due to 5G network changes
and modifications. Hence, it expects to acquire additional
equipment’s with an expense of $30 million for its products with
the expected change of the network.
The costs of manufacturing these products are expected to be $50
million in the initial year with a 5% expected annual increase for
the first four years and a 8% increase afterwards. Operating
expenses are expected to be $9.5 million per year. Net working
capital is predicted to be 20% of manufacturing costs. The company
pays a corporate tax rate of 20% and follows a straight-line
depreciation method.
XYZ Inc. current Market Balance sheet and Cost of Capital is as
follows:
Considering that XYZ Inc. maintains a constant debt to equity
ratio, using excel prepare the following:
A- Generate the forecasted incremental earnings statements for
this project and estimate the free cash flow statement.
B- Evaluate the project using two capital budgeting methods.
C- If the firm follows the Marcs 10-year depreciation method,
will the decision change? Explain.
- Xyz Inc Is A Telecom Company For Phone Products And Services That Is Studying A 10 Year Investment Opportunity Xyz Inc 1 (62.85 KiB) Viewed 57 times