COMPREHENSIVE ASSIGNMENT 3

Note: This assignment is intended to prepare you for the third term, so it does not need to be submitted (it is not pa

Calculating the NPV of a Project.

1. Jimito Restaurants is considering purchasing a machine to make hamburger meat, which costs 130,000.00 MXP
It is projected to sell 3,100 hamburger pieces annually at a unit cost of 5.50 MXP each and a unit selling price of 13
If the required rate of return on the investment is 12% per year and the tax rate is 27.5%, what would you recomm

1. Compute the Operating Cash Flow (OCF)

Annual projection
# of products 3,100
Unit price $ 13.50
Unit cost $ 5.50
Gross Profit $ 24,800.00
Depreciation expens $ 11,818.18
Earnings Before Taxe $ 12,981.82
Accounting Earnings $ 9,411.82
OCF $ 21,230.00

2. Compute the Net Present Value (NPV)

$ 21,230.00
0 1

-$3,942.65 Since the NPV is negative I would advise Jimito not to ma

Calculating the Price to Compete.

2. Ford Company needs a supplier of specialized screws for various cars. You have decided to compete to become
21,500 screws annually to the U.S. company. To achieve this, you know you need to invest in machinery and initial
with a market value of 85,500 at the end of its 12-year useful life.
You estimate annual fixed costs of $51,000 and variable costs of $2.80 per screw. Additionally, you estimate an ini
If your required annual rate of return is 15% and the tax rate is 30%, what price per unit should you set to compet
Note: Assume straight-line depreciation.

YEARS 0 1
Investment -$ 580,000.00
Sales (units) $ 11.41 21,500
Unit price
Fixed costs $ 51,000.00
Unit variable costs $ 2.80
Depreciation -$ 48,333.33
Working Capital -$ 22,500.00
Tax rate 30%
Discount rate 15.0%

1 Net profit/loss computation

YEARS 0 1
Sales (units) $ 21,500.00
Revenue $ 245,214.54
Variables costs -$ 60,200.00
Fixed costs -$ 51,000.00
Depreciation -$ 48,333.33
Salvage value
Profit before taxes $ 85,681.20
Taxes $ 25,704.36
Net profit $ 59,976.84

2 Cash flow calculation

YEARS 0 1
Cash flows -$ 602,500.00 $ 108,310.18

3 NPV computation
 it does not need to be submitted (it is not part of the evaluation).

mburger meat, which costs 130,000.00 MXP and has an economic life of 11 years, depreciated on a straight-line basis.
f 5.50 MXP each and a unit selling price of 13.50 MXP each.
he tax rate is 27.5%, what would you recommend to Jimito?

$ 21,230.00 $ 21,230.00 $ 21,230.00 $ 21,230.00 $ 21,230.00

2 3 4 5 6

V is negative I would advise Jimito not to make the investment

rs. You have decided to compete to become Ford's supplier. The contract would last for 12 years, requiring the supply of
w you need to invest in machinery and initial related costs totaling 580,000 dollars,

0 per screw. Additionally, you estimate an initial investment of $22,500 in working capital.
what price per unit should you set to compete for this contract?

2 3 4 5 6
$ 51,000.00 $ 51,000.00 $ 51,000.00 $ 51,000.00 $ 51,000.00

$ 48,333.33 $ 48,333.33 $ 48,333.33 $ 48,333.33 $ 48,333.33

2 3 4 5 6
21,500.00 21,500.00 21,500.00 21,500.00 21,500.00
$ 245,214.54 $ 245,214.54 $ 245,214.54 $ 245,214.54 $ 245,214.54
-$ 60,200.00 -$ 60,200.00 -$ 60,200.00 -$ 60,200.00 -$ 60,200.00
-$ 51,000.00 -$ 51,000.00 -$ 51,000.00 -$ 51,000.00 -$ 51,000.00
-$ 48,333.33 -$ 48,333.33 -$ 48,333.33 -$ 48,333.33 -$ 48,333.33

$ 85,681.20 $ 85,681.20 $ 85,681.20 $ 85,681.20 $ 85,681.20

$ 25,704.36 $ 25,704.36 $ 25,704.36 $ 25,704.36 $ 25,704.36
$ 59,976.84 $ 59,976.84 $ 59,976.84 $ 59,976.84 $ 59,976.84

2 3 4 5 6
$ 108,310.18 $ 108,310.18 $ 108,310.18 $ 108,310.18 $ 108,310.18

$ -
aight-line basis.

$ 21,230.00 $ 21,230.00 $ 21,230.00 $ 21,230.00 $ 21,230.00

7 8 9 10 11

ring the supply of

7 8 9 10 11 12
$ 51,000.00 $ 51,000.00 $ 51,000.00 $ 51,000.00 $ 51,000.00 $ 51,000.00

$ 48,333.33 $ 48,333.33 $ 48,333.33 $ 48,333.33 $ 48,333.33 $ 48,333.33

$ 22,500.00

7 8 9 10 11 12
21,500.00 21,500.00 21,500.00 21,500.00 21,500.00 21,500.00
$ 245,214.54 $ 245,214.54 $ 245,214.54 $ 245,214.54$ $ 245,214.54 245,214.54
-$ 60,200.00 -$ 60,200.00 -$ 60,200.00 -$ 60,200.00-$ -$ 60,200.00 60,200.00
-$ 51,000.00 -$ 51,000.00 -$ 51,000.00 -$ 51,000.00-$ -$ 51,000.00 51,000.00
-$ 48,333.33 -$ 48,333.33 -$ 48,333.33 -$ 48,333.33-$ -$ 48,333.33 48,333.33
$ 85,500.00
$ 85,681.20 $ 85,681.20 $ 85,681.20 $ 85,681.20 $ 85,681.20 $ 171,181.20
$ 25,704.36 $ 25,704.36 $ 25,704.36 $ 25,704.36 $ 25,704.36 $ 51,354.36
$ 59,976.84 $ 59,976.84 $ 59,976.84 $ 59,976.84 $ 59,976.84 $ 119,826.84

7 8 9 10 11 12
$ 108,310.18 $ 108,310.18 $ 108,310.18 $ 108,310.18 $ 108,310.18 $ 190,660.18