FIN504_PowerPoint_Slides_11

FIN504_PowerPoint_Slides_11 - FIN 504 Financial Management...

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FIN 504: Financial Management Lecture 11: A Capital Budgeting Problem
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2 FIN 504: Financial Management The Firm The ABC Corporation is considering a new project that is expected to last five years. The firm is in the 38% marginal tax bracket. The project has a 17.5% required rate of return.
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3 FIN 504: Financial Management Initial Outlay The cost of new plant and equipment will be $18,800,000. Shipping and installation costs will be $300,000. Both costs must be paid at t = 0.
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4 FIN 504: Financial Management Production Expected sales are as follows: Year Expected Units Sold 1 60,000 2 130,000 3 110,000 4 90,000 5 60,000
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5 FIN 504: Financial Management Costs and Pricing Costs The annual fixed cost is $850,000, and it will begin at t = 1. The variable cost per unit is $145. Pricing The price per unit is $310 in years 1-3. The price per unit is $275 in years 4-5.
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FIN 504: Financial Management Salvage Value The salvage value of plant and equipment is $2,700,000. The salvage value is received in year 5.
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This note was uploaded on 06/29/2011 for the course FIN 525 taught by Professor Dloncar during the Spring '11 term at University of Baltimore.

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FIN504_PowerPoint_Slides_11 - FIN 504 Financial Management...

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