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Judy Abarca, your training manager, has requested that you create a
spreadsheet showing projected cash flows for the first five years of a new
project that Blue Mesa is considering. She wants to make sure that you
know how to apply the principles from your second week of training.
For this assignment, you will use the template provided in Materials below
to create the spreadsheet that Judy Abarca has requested. Your
assignment will be graded based on the accuracy of your calculations.
Read the Blue Mesa Sales and Cost Projections provided in Materials
below and use that information as the basis for your cash flow
projections.
Sales are expected to grow 15 percent in the first year and 10 percent a year for
the next four years.
Gross margin is expected to stay constant as a percentage of sales, as are SG&A
expenses.
PP&E is expected to increase by $350,000 per year, with depreciation expense
remaining at $375,000 per year.
Working capital per year is estimated at 35 cents per dollar of sales.
The tax rate will remain constant at 34 percent. Interest expense remains
constant at $25,000 per year.
In 2002 working capital was $2,275,000.
Solution :
2003 2004 2005 2006 2007
Sales $7,500,000 $8,625,000 ### ### ###
Cost of Sales $5,025,000 $5,778,750 ### ### ###
Gross Margin $2,475,000 $2,846,250 ### ### ###
SG&A Expense $394,737 $453,948 $434,211 $434,211 $434,211
Depreciation $375,000 $375,000 $375,000 $375,000 $375,000
Interest Expense $25,000 $25,000 $25,000 $25,000 $25,000
Taxable Income $1,680,263 $1,992,302 ### ### ###
Taxes $571,289 $677,383 $642,018 $642,018 $642,018
Net Income $1,108,974 $1,314,920 ### ### ###
reate a
ars of a new
that you
aining.
terials below
ur
ulations.
terials
w
eciation expense
sales.
nse remains
2008
###
###
###
$434,211
$375,000
$25,000
###
$642,018
###
Your Assignment
For this assignment, you will compute the PV of two projects under
consideration by Blue Mesa. For each project, the company is
considering two options. Ultimately, you will determine which project
would be more profitable. Your analysis will be graded based on the
accuracy of your calculations and recommendations.
FV = $54 $61 $68 $75 $82 $89 $96 $103 $110 $118
FV = $52 $57 $63 $69 $76 $83 $92 $101 $111 $122
Your Assignment
For this assignment, you will use an Excel spreadsheet template to
compute the value of a government bond at two different market
interest
rates. The template has more detailed instructions, including all the
figures you will need to complete this assignment. Your analysis will be
graded based on the accuracy of your calculations.
Solutio
n: Face value of Bond = $1,000
Coupon Rate = 5%
Semiannual Coupon Payment$25
=
Yield to Maturity = 6%
5% Interest
Year 1 Year 2 Year 3 Year 4 Year 5
$1,000
6%
Data given,
Face value of Bond = $1,000
Coupon Rate = 8%
Semiannual Coupon Payment$40
=
Yield to Maturity = 6%
8% Interest
Year 1 Year 2 Year 3 Year 4 Year 5
$1,000
Once again, Judy Abarca would like to use a possible new project for
Blue Mesa as an opportunity to see if you can apply what you've been
learning during your training period with her. Specifically, she would like
you to calculate the net present value (NPV) and internal rate of return
(IRR) for the new project.
Your Assignment
For this assignment, you will compute the NPV and IRR of a new project
that Blue Mesa is considering. You will work with the Excel spreadsheet
template provided below. This assignment will be graded according to the
accuracy of your calculations.
Instructions: Blue Mesa Oil needs to launch a new production facility to reach its strategic goals. The new facility will cost $15 million to acquire. The company will use it for 35 years, at which time the company expects to sell the facility
for $1.2 mi
Solution :
$1,296,170 $1,752,521 $1,621,271 $1,621,271 $1,621,271 $1,621,271 $1,621,271 $1,621,271 $1,621,271 $1,621,271 $1,621,271 $1,621,271 $1,621,271 $1,621,271 $1,621,271 $1,621,271 $1,621,271 $1,621,271 $1,621,271 $1,621,271 $1,621,271 $1,621,271 $1,621,271 $1,621,271 $1,621,271 $1,621,271 $1,621,271 $1,621,271 $1,621,271 $1,621,271 $1,621,271 $1,621,271 $1,621,271 $1,621,271 $5,446,271
1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31 32 33 34 35
Year 0 $15,000,000
Year 0 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31 32 33 34 35
Cash Flow: $(15,000,000) $1,296,170 $1,752,521 $1,621,271 $1,621,271 $1,621,271 $1,621,271 $1,621,271 $1,621,271 $1,621,271 $1,621,271 $1,621,271 $1,621,271 $1,621,271 $1,621,271 $1,621,271 $1,621,271 $1,621,271 $1,621,271 $1,621,271 $1,621,271 $1,621,271 $1,621,271 $1,621,271 $1,621,271 $1,621,271 $1,621,271 $1,621,271 $1,621,271 $1,621,271 $1,621,271 $1,621,271 $1,621,271 $1,621,271 $1,621,271 $5,446,271
Discount Factor:
(Assume Discount Rate 12.5%) 1.000 0.889 0.790 0.702 0.624 0.555 0.493 0.438 0.390 0.346 0.308 0.274 0.243 0.216 0.192 0.171 0.152 0.135 0.120 0.107 0.095 0.084 0.075 0.067 0.059 0.053 0.047 0.042 0.037 0.033 0.029 0.026 0.023 0.021 0.018 0.016