Finance case (Urgent) part one

2008-10-27 8:27 pm

Would someone help me to finish this case that I hv been thinking for whole week. I will deeply appreciate to you.

Case Study (40 marks)
ABC Ltd. is considering a proposal to manufacture a new type of industrial electric motor which would replace most of its existing product line. A research breakthrough has given ABC a two-year lead on its competitors. The proposal is summarized in the table.

You have been asked to evaluate the proposal by taking the following steps:
(a) Read the notes to the table carefully. Which entries make sense? Which do not? Why or why not?
(b) What additional information would you need to construct a version of this table that makes sense?
(c) Construct a table and recalculate NPV. Make additional assumptions as necessary.

Table: Cash flows and present value of ABC proposed investment ($,000)
__________________________2008___2009___2010___2011-2018
1. Capital expenditure_______-10,400
2. Research and development_- 2,000
3. Working capital__________-4,000
4. Revenue________________________8,000___6,000____40,000
5. Operating costs_________________- 4,000___- 8,000___-20,000
6. Overhead_______________________- 800___-1,600____-4,000
7. Depreciation___________________- 1,040___-1,040____-1,040
8. Interest________________________- 2,160___-2,160___-2,160
9. Income________________- 2,000____0_____3,200_____12,800
10. Tax____________________ 0______0______420______4,480
11. Net cash flow_________- 16,000____0_____2,780_____8,320
12. Net present value=13,932

*Pls read part two notes*

回答 (1)

用戶96648

2008-10-28 6:52 am

✔ 最佳答案

1. Deprecition is not Cash flow item. Depreciation is only for calculate the book value of an asset, to show it on the balance sheet. Remember: no depreication on any cash flow analysis.

2. Row, 9, 10, 11 is crazy, its wrong. On the row1 to 8, cash in and out is listed out clearly. But, how come there is a line of INCOME ! This is not an income statement. And Tax is cash outflow, assume you pay tax in the same year in this case. (in real life, you pay tax next year.!). TAX should be minus in the row. Not positive. So, in summary, delete INCOME row, change TAX to negative.

3. I dont know what that Working Capital for, if you dont know, cut it.

4. Question, is that R&D only done in 2008 ? and no more R&D in future ?

5. Extra info need : Replace Old products by new products, you have the sunk cost of the old things. You have to consider the additional labor, machine need for new products, for cash flow analysis. Also, still some old products will continue to produce, and they use the overhead, operationg cost too. How much is for old product, how much for new products ?

6. Need to know, why 2010 sales revenue drop in this forecast, any reason ?

7. This is not a cash flow table, its only part of the Balance Sheet and part of the income statement. So, its not correct. You can find in any textbook of a cash flow statement for NPV analysis, the guideline is CASH IN, then CASH OUT, put up two section, in the last row, its the NPV.

Good luck, hope it helps. Further question, email la. But, I wont put up the new table for you, sorry, but I think here has so many points to you la.

參考: Myself.

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