finance 12

due april 20th

Fin 12 Term Project

It should be typed and double-spaced and be between 12 and 15 pages in length. The report should contain the following sections;

Table of Contents

Executive Summary (one page)

Statement of Problem

Analysis & Methodology

Discussion of Results

Conclusion

Tables and Charts should be included in the body of the paper.

The paper will be graded on (i) its professionalism, e.g., grammar, presentation, and (ii) the correctness of its analysis. The project is due on April

20, 2013

Assignment

Rediform Concrete is considering a $5 million capital investment for a factory to manufacture formed concrete products, such as patio stones, mobile home stones, and lawn decorations. The proposed factory will generate annual sales between $2 million and $5 million. After-tax fixed costs are $500k per year and after-tax variable costs are 50% of sales. Therefore, annual after-tax cash flow for the project is (0.5)Sales.

The expected life of the project is 5 years and the salvage value depends on land prices at the end of five years. The factory would be built on Palmetto Rd., near the Sunshine Expressway. A new freeway exit is being planned for the Sunshine Expressway. If the exit is built at Palmetto Rd., the salvage value of the factory will be $3 million. If the exit is located at one of the two competing roads, the salvage value will be $1 million. Ignore depreciation in your calculations.

Other data: The firm has estimated the level of systematic risk to be , the expected return on the market is , and the risk-free rate of return is .
Prepare an analysis that examines the economic break-even for this project. Also, prepare an analysis that examines the project’s sensitivity to salvage value.
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