Essay on Pleasure Craft Inc.

Free cash flows of the project for next five years can be calculated by adding depreciation values and subtracting changes in working capital from net income. In 2010, there will be a cash outflow of $2.2 million as capital expenditure. In 2011, there will be an additional one time cash outflow of $300,000 as an advertising expense. Using net free cash flow values for next five years and discount rate for discounting, NPV for the project comes out to be $2907, 100. The rate of return at which net present value becomes zero i.e.

General speaking, WACC is the rate that a company’s shareholders expect to be paid on average to finance its assets, and it is the overall required return on the firm as a whole. Therefore, company directors often use WACC to determine whether a financial decision is feasible or not. In this case, I will choose 9.38% as discount rate. The reason why I choose 9.38% as discount rate is because the estimated Debt/Equity is 26% under the assumptions by CFO Sheila Dowling, which is most close to 25% of Debt/Equity from the projected WACC schedule. There might be some flaws existing by using WACC as discount rate. As we know, the cost of debt would be raised significantly as the leverage increased. The investment will definitely increase the firm’s current debt. So, the cost of debt would not keep at 7.75%.

The fixed cost is assumed that Larry has discovered the other fixed cost incurred. The total investment is $800,000. The worst case scenario assumes that Larry got a total line of credit from the bank in the amount of $400,000 and invested $400,000 from other source. The Notes payable – short term and the long-term debt is (11.8 + 3.7) = 15.5 % from Table F in the handout. The Loan interest and payment per year is ($400,000 * 0.155)= $62,000. The Income data from Table F indicates that there is a 0.4% of all other expenses net out of the total sales which equals to $109,908 (5,700,666 gallons * $4.82 *0.4%) .

To relever the βe, we use the formula, βe = βu +(D/E)*(βu-βd). And the “Target D/E” was found by taking “Target D/V” divided by “1-Target D/V”. So we get the new βe, 1.3576. Then to get cost of equity, we use the CAPM formula, Re=Rf+β(EMRP), 11.7679%. Since we have get the cost of equity and cost of debt, we can determined the WACC, which is equal to Equity/Value*Cost of Equity+Debt/Value*Cost of Debt*(1-tax rate). In the end ,we arrived at 8.48%.

In the second year of the GEL Motors will hire the construction crew and begin work on development of the plant. Moreover, GEL motors will be creating the supply chain between the clean energy factory and the original. Since both factories are in San Antonio, the plan will be to outsource the manufacturing needs from one factory to the other.

I used WACC as the discount factor, we expect the rate of return to be higher than it, the same at least. The WACC reflects the average risk and overall capital structure of the entire firm [2]. It’s the required return and it presents how much the company pays for the capital it finances. In this case, the cost of equity is 10.33%, the cost of debt is 6.50%. I calculated WACC using those numbers and got a result of 8.49%.

Timothy Brook’s book, The Confusions of Pleasure: Commerce and Culture in Ming China is a detailed account of the three centuries of the Ming Dynasty in China. The book allows an opportunity to view this prominent time period of Chinese history. Confusions of Pleasure not only chronicles the economic development during the Ming dynasty, but also the resulting cultural and social changes that transform the gentry and merchant class. Brook’s insights highlight the divide between the Ming dynasty’s idealized beliefs, and the realities of its economic expansion and its effects. Brook describes this gap through the use of several first hand accounts of individuals with various social statuses.

Almost everyone has some kind of leisure time whether it is a couple hours or a couple days. What varies is the type of recreational activities people choose to do during that time. Although leisure and recreation is chosen based on ones unique individual interests, there are many sociocultural factors that influence the type of recreational activities we do, when we do it and how often we do it. These factors include political,

Star Appliance is looking to expand their product line and is considering three different projects: dishwashers, garbage disposals, and trash compactors. We want to determine which project would be worth doing by determining if they will add value to Star. Thus, the project(s) that will add the most value to Star Appliance will be worth pursuing. The current hurdle rate of 10% should be re-evaluated by finding the weighted average cost of capital (WACC). Then by forecasting the cash flows of each project and discounting them by the WACC to find the net present value, or by solving for the internal rate of return, we should be able to see which projects Star should undertake.

Since this project is a going concern, the levered terminal and present values are calculated using the weight average cost of capital (WACC) as the discount rate, which we calculate to be 16.17%.

2. Forecast the firm’s financial statements for 2002 and 2003. What will be the external financing requirements of the firm in those years? Can the firm repay its loan within a reasonable period? In order to forecast the financial statements of 2002 and 2003, the following assumptions need to be made. The growth of sales is 15%, same as 2001, which is estimated by managers. The rate of production costs and expenses per sales is constant to 50%. Administration and selling expenses is the average of last 4 years. The depreciation is $7.8 million per year, which is calculated by $54.6 million divided by 7 years. Tax rate is 24.5%, which is provided. The dividend is $2 million per year only when the company makes profits. Therefore, we assume that there will be no dividend in 2003. Gross PPE will be $27.3 million (54.6/2) per year. We also assume there is no more long term debt, because any funds need in the case are short term debt, it keeps at $18.2 million. According to the forecast, Star River needs external financing approximately $94 million and $107 million in 2002 and 2003, respectively. In order to analysis if the company can repay the debt, we need to know the interest coverage ratio, current ratio and D/E ratio. The interest coverage ratios through the forecast were 1.23 and 0.87 respectively, which is the danger signal to the managers, because in 2003, the profits even not

To calculate the cost of debt and equity for this project, we combined the risk-free rate with a risk premium based on the market risk premium and the riskiness of Southwest Airlines.

In the future, SELF will be able to set limits on their cost of debt, by using some of the available alternatives (see next chapter). Furthermore, we know that the limits on the debt ratio are 4 to 1, in comparison with the net worth of SELF. Interpreting this, we assume that SELF may have a maximum of 80% debt, with 20% equity in their capital structure (4 to 1). The current Prime-rate is 8,75% and will be used as a basis to calculate the possible WACC for SELF. Assuming that the debt rates are before tax, we will subtract a tax rate of 30% on the debt rates, resulting in:

My company designs a range of pressure vessels, separators and maintenance for oil and gas refineries and industry. The company steel designing expert for oil and gas industries. It was founded 1943, and is well known for its services in the oil and gas industry. We design and make the pressure vessels in house. The hydraulic port that is utilized as a part of the greater part of the pressure vessels is produced by the organization in-house, while the cylinder seals that is utilized by a few however not the greater part of

The financial analysis has been done and on the basis of NPV and IRR projections we accept the project because NPV is positive at 15% nominal rate of return and the IRR is 64% without Anna’s concerns and IRR is 51% with regard to her concerns. So, we accept the project because in both the situations, the project seems acceptable and profitable.