Rare Agri-Products Ltd. is considering a new project with a projected
life of seven (7) years. The project falls under the government’s subsidy program for encouraging local agricultural products and is eligible for a one-time rebate of 25% on any initial equipment installed for the project. The initial equipment (IE) will cost $41,000,000. At the end of year 1, An additional equipment (AE) costing $3,500,000 will be needed at the end of year 3. At the end of seven (7) years, the original equipment, IE, will have no resale value but the supplementary equipment, AE, can be sold for $50,000. A working capital of $1,350,000 will be needed.
The project is
Year 1 70,000 units
Year 2 100,000 units
Years 3-5 250,000 units
Years 6-7 325,000 units
A sale price of $150 per unit for the first two years is expected and then decline to $90 per unit thereafter as the newness of the product loses some sheen. The variable expenses will amount to 30% of sales revenue. Fixed cash operating expenses will amount to $1,100,000 per year.
The company falls in the 25% tax category for ordinary income and 40% tax category for
The initial equipment is
The initial financing of the project will be carried out as follows:- 55% equity and 45% debt. The company paid $1.50 per share in the form of dividend this year, which is likely to increase at a rate of 3% per year for the near future. The current price of the company’s stock is $9.50 per share. The bank loan is likely to be arranged at an interest rate of 13.5% p.a. 9th
1. Compute the Terminal cash flow
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- A government-funded wind-based electric power generation company in the southern part of the country has developed the following estimates (in $1000) for a new turbine farm. The MARR is 10% per year and the project life is 25 years. Benefits: $45,000 in year 0; $29,000 in year 3 Government savings: $2,000 in years 1 through 20 Cost: $52,000 in year O Disbenefits: $3000 in years 1 through 10 NOTE: This is a multi-part question. Once an answer is submitted, you will be unable to return to this part. Calculate the Pl value. The Pl value is 0.2565arrow_forwardRare Agri-Products Ltd. is considering a new project with a projected life of seven (7) years. The project falls under the government’s subsidy program for encouraging local agricultural products and is eligible for a one-time rebate of 25% on any initial equipment installed for the project. The initial equipment (IE) will cost $41,000,000. An additional equipment (AE) costing $3,500,000 will be needed at the end of year 3. At the end of seven (7) years, the original equipment, IE, will have no resale value but the supplementary equipment, AE, can be sold for $50,000. A working capital of $1,350,000 will be needed. Question: What is the initial investment requiredarrow_forwardRare Agri-Products Ltd. is considering a new project with a projected life of seven (7) years. The project falls under the government’s subsidy program for encouraging local agricultural products and is eligible for a one-time rebate of 25% on any initial equipment installed for the project. The initial equipment (IE) will cost $41,000,000. An additional equipment (AE) costing $3,500,000 will be needed at the end of year 3. At the end of seven (7) years, the original equipment, IE, will have no resale value but the supplementary equipment, AE, can be sold for $50,000. A working capital of $1,350,000 will be needed.The project is forecast to generate sales of agri-products over the seven years as follows:Year 1 70,000 unitsYear 2 100,000 unitsYears 3-5 250,000 unitsYears 6-7 325,000 unitsA sale price of $150 per unit for the first two years is expected and then decline to $90 per unit thereafter as the newness of the product loses some sheen. The variable expenses will amount to 30% of…arrow_forward
- Rare Agri-Products Ltd. is considering a new project with a projected life of seven (7) years. The project falls under the government’s subsidy program for encouraging local agricultural products and is eligible for a one-time rebate of 25% on any initial equipment installed for the project. The initial equipment (IE) will cost $41,000,000. At the end of year 1, an additional equipment (AE) costing $2,500,000 will be needed at the end of year 3. At the end of seven (7) years, the original equipment, IE, will have no resale value but the supplementary equipment, AE, can be sold for $50,000. A working capital of $1,350,000 will be needed. The project is forecast to generate sales of agri-products over the seven years as follows:Year 1 70,000 unitsYear 2 100,000 unitsYears 3-5 250,000 unitsYears 6-7 325,000 units A sale price of $150 per unit for the first two years is expected and then decline to $90 per unit thereafter as the newness of the product loses some sheen. The variable…arrow_forwardRare Agri-Products Ltd. is considering a new project with a projected Life of seven (7) years. The project falls under the government’s subsidy program for encouraging local agricultural products and is eligible for a one-time rebate of 25% on any initial equipment installed for the project. The initial equipment (IE) will cost $41,000,000. An additional equipment (AE) costing $3,500,000 will be needed at the end of year 3. At the end of seven (7) years, the original equipment, IE, will have no resale value but the supplementary equipment, AE, can be sold for $50,000. A working capital of $1,350,000 will be needed. The project is forecast to generate sales of agri-products over the seven years as follows: Year 1 70,000 units Year 2 100,000 units Year’s 3-5 250,000 units Year’s 6-7 325,000 units A sale price of $150 per unit for the first two years is expected and then decline to $90 per unit thereafter as the newness of the product loses some sheen. The variable expenses will amount to…arrow_forwardRare Agri-Products Ltd. is considering a new project with a projected Life of seven (7) years. The project falls under the government’s subsidy program for encouraging local agricultural products and is eligible for a one-time rebate of 25% on any initial equipment installed for the project. The initial equipment (IE) will cost $41,000,000. An additional equipment (AE) costing $3,500,000 will be needed at the end of year 3. At the end of seven (7) years, the original equipment, IE, will have no resale value but the supplementary equipment, AE, can be sold for $50,000. A working capital of $1,350,000 will be needed. The project is forecast to generate sales of agri-products over the seven years as follows: Year 1 70,000 units Year 2 100,000 units Year’s 3-5 250,000 units Year’s 6-7 325,000 units A sale price of $150 per unit for the first two years is expected and then decline to $90 per unit thereafter as the newness of the product loses some sheen. The variable expenses will amount to…arrow_forward
- Rare Agri-Products Ltd. is considering a new project with a projected life of seven (7) years. The project falls under the government’s subsidy program for encouraging local agricultural products and is eligible for a one-time rebate of 25% on any initial equipment installed for the project. The initial equipment (IE) will cost $41,000,000. An additional equipment (AE) costing $3,500,000 will be needed at the end of year 3. At the end of seven (7) years, the original equipment, IE, will have no resale value but the supplementary equipment, AE, can be sold for $50,000. A working capital of $1,350,000 will be needed. The project is forecast to generate sales of agri-products over the seven years as follows: Year 1 Year 2 Years 3-5 Years 6-7 70,000 units 100,000 units 250,000 units 325,000 units A sale price of $150 per unit for the first two years is expected and then decline to $90 per unit thereafter as the newness of the product loses some sheen. The variable expenses will amount…arrow_forwardRare Agri-Products Ltd. is considering a new project with a projected life of seven (7)years. The project falls under the government’s subsidy program for encouraging local agricultural products and is eligible for a one-time rebate of 25% on any initial equipment installed for the project. The initial equipment (IE) will cost $41,000,000. At the end of year 1, An additional equipment (AE) costing $3,500,000 will be needed at the end of year 3. At the end of seven (7)years, the original equipment, IE, will have no resale value but the supplementary equipment, AE, can be sold for $50,000. A working capital of $1,350,000 will be needed.The project is forecast to generate sales of agri-products over the seven years as follows:Year 170,000 unitsYear 2100,000 unitsYears 3-5250,000 unitsYears 6-7325,000 unitsA sale price of $150per unitfor the first two years is expected and then decline to $90 per unitthereafter as the newness of the product loses some…arrow_forwardRare Agri-Products Ltd. is considering a new project with a projectedlife of seven (7) years. The project falls under the government’ssubsidy program for encouraging local agricultural products and iseligible for a one-time rebate of 25% on any initial equipmentinstalled for the project. The initial equipment (IE) will cost$41,000,000. At the end of year 1, an additional equipment (AE) costing$2,500,000 will be needed at the end of year 3. At the end of seven(7) years, the original equipment, IE, will have no resale value butthe supplementary equipment, AE, can be sold for $50,000. A workingcapital of $1,350,000 will be needed.The project is forecast to generate sales of agri-products over theseven years as follows:Year 1 70,000 unitsYear 2 100,000 unitsYears 3-5 250,000 unitsYears 6-7 325,000 unitsA sale price of $150 per unit for the first two years is expected andthen decline to $90 per unit thereafter as the newness of the productloses some sheen. The variable expenses will amount…arrow_forward
- Rare Agri-Products Ltd. is considering a new project with a projectedlife of seven (7) years. The project falls under the government’ssubsidy program for encouraging local agricultural products and iseligible for a one-time rebate of 25% on any initial equipmentinstalled for the project. The initial equipment (IE) will cost$41,000,000. At the end of year 1, An additional equipment (AE) costing$3,500,000 will be needed at the end of year 3. At the end of seven(7) years, the original equipment, IE, will have no resale value butthe supplementary equipment, AE, can be sold for $50,000. A workingcapital of $1,350,000 will be needed.The project is forecast to generate sales of agri-products over theseven years as follows:Year 1 70,000 unitsYear 2 100,000 unitsYears 3-5 250,000 unitsYears 6-7 325,000 unitsA sale price of $150 per unit for the first two years is expected andthen decline to $90 per unit thereafter as the newness of the productloses some sheen. The variable expenses will amount…arrow_forwardRare Agri-Products Ltd. is considering a new project with a projectedlife of seven (7) years. The project falls under the government’ssubsidy program for encouraging local agricultural products and iseligible for a one-time rebate of 25% on any initial equipmentinstalled for the project. The initial equipment (IE) will cost$41,000,000. At the end of year 1, An additional equipment (AE) costing$3,500,000 will be needed at the end of year 3. At the end of seven(7) years, the original equipment, IE, will have no resale value butthe supplementary equipment, AE, can be sold for $50,000. A workingcapital of $1,350,000 will be needed.The project is forecast to generate sales of agri-products over theseven years as follows:Year 1 70,000 unitsYear 2 100,000 unitsYears 3-5 250,000 unitsYears 6-7 325,000 unitsA sale price of $150 per unit for the first two years is expected andthen decline to $90 per unit thereafter as the newness of the productloses some sheen. The variable expenses will amount…arrow_forwardRare Agri-Products Ltd. is considering a new project with a projected life of seven (7) years. The project falls under the government's subsidy program for encouraging local agricultural products and is eligible for a one-time rebate of 25% on any initial equipment installed for the project. The initial equipment (IE) will cost $41,000,000. An additional equipment (AE) costing $3,500,000 will be needed at the end of year 3. At the end of seven (7) years, the original equipment, IE, will have no resale value but the supplementary equipment, AE, can be sold for $50,000. A working capital of $1,350,000 will be needed. The project is forecast to generate sales of agri-products over the seven years as follows: Year 170,000 units Year 2 100,000 units Years 3-5 250,000 units Years 6-7 325,000 units A sale price of $150 per unit for the first two years is expected and then decline to $90 per unit thereafter as the newness of the product loses some sheen. The variable expenses will amount to…arrow_forward
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