Assignment 1: Superior Manufacturing is thinking of launching a new product. The company expects to sell $950,000 of the new product in the first year and $1,500,000 each year thereafter. Direct costs including labor and materials will be 55% of sales. Indirect incremental costs are estimated at $80,000 a year. The project requires a new plant that will cost a total of $1,000,000, which will be depreciated straight line over the next five years. The new line will also require an additional net investment in inventory and receivables in the amount of $200,000. Assume there is no need for additional investment in building and land for the project. The firm's marginal tax rate is 35%, and its cost of capital is 10%. Based on this information you are to complete the following tasks.
1. Prepare a statement showing the incremental cash flows for this project over an 8-year period.
2. Calculate the Payback Period (P/B) and the NPV for the project.
3. Based on your answer for question 2, do you think the project should be accepted? Why? Assume Superior has a P/B (payback) policy of not accepting projects with life of over three years.
4. If the project required additional investment in land and building, how would this affect your decision? Explain.
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Assignment 2: Many corporate acquisitions result in losses to the acquiring firms' stockholders. Accordingly, why do firms purchase other corporations? Are they simply paying too much for the acquired corporation? A co-worker asks your opinion. Specifically state the reasons for your argument.
Assignment 3: After submitting your report, one of the new brokers asks the three questions below and requests a written response:
What are the economic functions financial intermediaries perform? (1 to 2 Paragraphs)
What is the role of broker in the financial market? (1 to 2 Paragraphs)
How has that role changed since the inception of on-line investing?