The writer is very fast, professional and responded to the review request fast also. Thank you.
You are considering the purchase of a new zippy fabricating machine for your firm, Cherry Enterprises, Inc. CEI makes novelty items for wholesale to retail outlets located in tourist traps. The purchase of the zippy will allow CEI to market a new product, a walking stick with built-in bear repellant. In order to analyze the decisions to manufacture and sell the walking sticks and to lease the zippy, you have collected the following data, some of which may be relevant (all dollars in 2017 prices):
Cost of zippy = $10,000,000
Useful (and depreciable) life of zippy = 10 years
Salvage value (market and depreciation) of zippy = $0
Expected walking stick sales volume (in lots of 1000) = 2500/year
Wholesale price per 1000 lot of walking sticks = $1099
Annual zippy maintenance contract costs = $100,000 (the only cash fixed cost)
Average variable cost per lot of walking sticks = $550
Additional working capital (supplies inventory) required at beginning of year 1 = $200,000
Current equity = $50,000,000
Current debt = $50,000,000
Marginal tax rate for CEI = 30%
Inflation rate = .03
Zippy can be financed in several ways. The following data pertain to financing options:
Required return on equity (real) = .05
Bank loan interest rate available, given current capital structure = .06
Lease contract with payments made in 10 equal annual installments, beginning at start of
lease period. Lease contract includes maintenance costs. Payment = $1,250,000
Evaluate the zippy as a business opportunity for CEI. Evaluate the lease financing option for the zippy as well. Use the “easy way” to value a financial lease that is presented in BMA Chapter 25. Although CEI is a tax-paying entity and could benefit from the use of MACRS depreciation, for simplicity here (i.e., my grading ease), please use straight-line depreciation expense recognition.
Delivering a high-quality product at a reasonable price is not enough anymore.
That’s why we have developed 5 beneficial guarantees that will make your experience with our service enjoyable, easy, and safe.
You have to be 100% sure of the quality of your product to give a money-back guarantee. This describes us perfectly. Make sure that this guarantee is totally transparent.
Read moreEach paper is composed from scratch, according to your instructions. It is then checked by our plagiarism-detection software. There is no gap where plagiarism could squeeze in.
Read moreThanks to our free revisions, there is no way for you to be unsatisfied. We will work on your paper until you are completely happy with the result.
Read moreYour email is safe, as we store it according to international data protection rules. Your bank details are secure, as we use only reliable payment systems.
Read moreBy sending us your money, you buy the service we provide. Check out our terms and conditions if you prefer business talks to be laid out in official language.
Read more