You’ve been offered a full time position as an assistant financial analyst at Bathurst Metal Works. Your latest assignment involves the analysis of several risky projects. Because this is your first assignment dealing with risk analysis, you have been asked not only to provide a recommendation on the project in question but also respond to a number of questions aimed at judging your understanding of risk analysis and capital budgeting. The memorandum you received outlining your assignment follows:
To: Assistant Financial Analyst
From: Chief Financial Officer
Re: Capital budgeting and risk analysis
You are required to conduct a risk analysis of the following new project, as outlined below. This new project involves purchase of a new laser cutting tool that can be used in Bathurst Metal Works’ manufacturing division. The products manufactured using the new technology are expected to sell for an average price of $300 per unit, and the company analyst performing the analysis expects Bathurst Metal Works can sell 20,000 units per year at this price for a period of five years. To get started this business will require the purchase of a $2 million piece of equipment that has a residual or salvage value in five years of $200,000. In addition, Bathurst Metal Works expects to have to invest an additional $300,000 in working capital to support the new business. Other pertinent information concerning the business venture is as follows:
Initial cost of the equipment $2,000,000
Project and equipment life 5 years
Salvage value of equipment $200,000
Working capital required $300,000
Depreciation method Straight line
Depreciation expenses $360,000
Discount rate or required rate of return 12%
Tax rate 30%
In addition, estimates for unit sales, selling price, variable cost per unit and cash fixed cost for the base- case, worst-case and best-case scenario are as follows:
Base-case Worst-case Best-case
Unit Sales 20,000 15,000 25,000
Price per unit $300 $250 $330
Variable cost per unit $200 $210 $180
Cash fixed cost per year $500,000 $450,000 $350,000
Depreciation $360,000 $360,000 $360,000
Estimate the cash flows for the investment under the listed base-case value assumptions. Calculate the project’s NPV for these cash flows.
Evaluate the NPV of the investment under the worst-case assumptions.
iii. Evaluate the NPV of the investment under the best-case assumptions.
Explain how sensitivity and scenario analysis are useful for evaluating project risk?
How can break-even analysis be helpful in evaluating project risk?
Why Homework Market
We always make sure that writers follow all your instructions precisely. You can choose your academic level: high school, college/university or professional, and we will assign a writer who has a respective degree.
We have hired a team of professional writers experienced in academic and business writing. Most of them are native speakers and PhD holders able to take care of any assignment you need help with.
If you think we missed something, send your order for a free revision. You have 10 days to submit the order for review after you have received the final document. You can do this yourself after logging into your personal account.
All papers are always delivered on time. In case we need more time to master your paper, we may contact you regarding the deadline extension. We will always strive to deliver on time.
We use several writing tools checks to ensure that all documents you receive are free from plagiarism. Our editors carefully review all quotations in the text.
Our support agents are available 24 hours a day 7 days a week and committed to providing you with the best customer experience. Get in touch whenever you need any assistance.
Try it now!
How it works?
Follow these simple steps to get your paper done
Place your order
Fill in the order form and provide all details of your assignment.
Proceed with the payment
Choose the payment system that suits you most.
Receive the final file
Once your paper is ready, we will email it to you.
No need to work on essay at night. Sleep tight, we will cover your back. We offer all kinds of essay writing services.
No matter what kind of academic paper you need and how urgent you need it, you are welcome to choose your academic level and the type of your paper at an affordable price. We take care of all your paper needs and give a 24/7 customer care support system.
An admission essay is an essay or other written statement by a candidate, often a potential student enrolling in a college, university, or graduate school. You can be rest assurred that through our service we will write the best admission essay for you.
Our academic writers and editors make the necessary changes to your paper so that it is polished. We also format your document by correctly quoting the sources and creating reference lists in the formats APA, Harvard, MLA, Chicago / Turabian.
If you think your paper could be improved, you can request a review. In this case, your paper will be checked by the writer or assigned to an editor. You can use this option as many times as you see fit. This is free because we want you to be completely satisfied.