Corporate FInace Assignment/ Professional Essay Writers

Billingham Packaging is considering expanding its production capacity by purchasing a new machine, the XC-750 The cost of the XC 750 is $2.69 million, Unfortunately, installing this machine will take several months and will partially disrupt production. The firm has just completed a $47.000 feasibility study to analyze the decision to buy the XC-750, resulting in the following estimates • Marketing Once the XC-750 is operational next year, the extra capacity is expected to generate $10 10 million per year in additional sales, which will continue for the 10-year life of the machine. • Operations. The disruption caused by the installation will decrease sales by $4.92 million this year. As with Billingham’s existing products, the cost of goods for the products produced by the XC-750 is expected to be 75% of their sale price. The increased production will also require an increased inventory on hand of $1.17 million during the life of the project, including year 0. • Human Resources: The expansion will require additional sales and administrative personnel at a cost of $2.03 million per year. • Accounting. The XC-750 will be depreciated via the straight-line method over the 10-year life of the machine. The firm expects receivables from the new sales to be 16% of revenues and payables to be 9% of the cost of goods sold. Billingham’s marginal corporate tax rate is 35% a. Determine the incremental earnings from the purchase of the XC-750 b. Determine the free cash flow from the purchase of the XC-750 c. If the appropriate cost of capital for the expansion is 10.5%. compute the NPV of the purchase a. Determine the incremental earnings from the purchase of the XC-750.

a. Determine the incremental earnings from the purchase of the XC-750.

b. Determine the free cash flow from the purchase of the XC-750.

c. If the appropriate cost of capital for the expansion is 10.5%, compute the NPV of the purchase.

d. While the expected new sales will be $10 10 million per year from the expansion, estimates range from $8.00 million to $12 20 million. What is the NPV in the worst case? In the best case?

e. What is the break-even level of new sales from the expansion? What is the breakeven level for the cost of goods sold?

f. Billingham could instead purchase the XC-900, which offers even greater capacity The cost of the XC 900 is $405 million. The extra capacity would not be useful in the first two years of operation but would allow for additional sales in years 3 through 10. What level of additional sales (above the $10.10 million expected for the XC-750) per year in those years would justify purchasing the larger machine?  Get Finance Help Today