Foundation Rehearsal script

Thedownpaymentisequitythatmixis20equity

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Unformatted text preview: itive number when buying equipment, and as a negative number when selling. Are there tips to keep in mind? As a rule of thumb, always fully fund plant and equipment purchases. Sources of funding include stock issues, bond issues, and depreciation. (Later in the tutorial we will discuss “why.”) For example, if we are spending $20 million on new plant, we should be able to add together stock issues, bond issues and depreciation equaling $20 million. Like any rule of thumb there are exceptions, but you should be able to explain why the exception is appropriate before making the exception. What do we need to do for the Rehearsal? Technically, nothing. The rehearsal only lasts one round, and plant and equipment changes take a year. However, rather than waste the opportunity to experiment, we suggest the following (be sure to recalculate to see the effects). 1. Sell 400 thousand units of capacity of Able. 2. Increase Able's capacity by 150 thousand units. 6 3. 4. 5. Increase Able's automation to 4.0. Observe the net cost of...
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