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未知题型

Zelda Haggerty was recently promoted to project manager at Verban Automation, a maker of industrial machinery. Haggerty’s first task as project manager is to analyze capital-spending proposals.
The first project under review is a proposal for a new factory. Verban wants to build the plant on land it already owns in IndiA.Below are details included on a fact sheet regarding the factory project:
§ The initial outlay to the builder would be $85 million for the building. Verban would spend another $20 million on specialized equipment in the first year.
§ The factory would open up new markets for Verban’s products. Production should begin July 1 of the second year.
§ Verban’s tax rate is 34 percent.
§ Verban expects the factory to generate $205 million in annual sales starting in the third year, with half of that amount in the second year.
§ At the end of the sixth year, Verban expects the market value and the book value of the building to be worth $35 million, and the market value and the book value of the equipment to be worth $3.25 million.
§ Fixed operating costs are expected to be $65 million a year once the factory starts production.
§ Variable operating costs should be 40 percent of sales.
§ Verban uses straight-line depreciation.
§ New inventories are likely to boost working capital by $7.5 million in the first year of production.
§ Verban’s cost of capital for the factory project is 14.3 percent.
Verban’s chief of operations, Max Jenkins, attached a note containing some of his thoughts about the project. His comments are listed below:
§ Comment 1: “We spent $5 million up front on an exclusive, 10-year maintenance contract for all of our equipment in Asia two years ago, before an earlier project was canceleD.Your budget should reflect that.”
§ Comment 2: “Some Asian clients are likely to switch over to the equipment from the new factory. They account for about $5 million a year in sales for the U.S. division. Your budget should reflect that.”
§ Comment 3: “I expect variable costs to take a one-time hit in Year 1, as we should plan for about $1.5 million in installation expense for the manufacturing equipment.”
§ Comment 4: “We bought the land allocated for this factory for $30 million in 1998. That money is long spent, so don’t worry about including it in the budget analysis.”
Haggerty is unimpressed with the advice she received from Jenkins and calculates cash flows and net present values using numbers from the fact sheet without taking any of the advicE.She assumes all inflows and outflows take place at the end of the year.
Verban is also considering upgrading two smaller, outdated factories, projects for which the cost of capital is 14.3 percent. Both of the remodeled factories would have a three-year life and cash flows as follows:
Initial outlayYear 1Year 2Year 3
-$30 million$15 million$17 million$28 million
Verban is willing to pursue the new factory or the renovations, but not both projects. Haggerty decides which project makes the most sense and prepares models and recommendations for Verban’s executives. Haggerty is concerned that her budgeting calculations do not accurately affect inflation, so she attempts to tweak her models to reflect the 2.5 percent inflation expected annually over the next five years.
Part 2)
In the last year of the new factory project, cash flows will be closest to:
A) $95.71 million.
B) $91.74 million.
C) $90.21 million.
D) $88.00 million.
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【参考答案】

Ans:D $88.00 million.
To calculate cash flows for Year 6......

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未知题型 Clara Holmes, CFA, is attempting to model the importation of an herbal tea into the United States. She gathers 24 years of annual data, which is in millions of inflation-adjusted dollars. The real dollar value of the tea imports has grown steadily from $30 million in the first year of the sample to $54 million in the most recent year.She computes the following equation:(Tea Imports)t = 3.8836 + 0.9288 × (Tea Imports)t − 1 + ett-statistics (0.9328)(9.0025)R2 = 0.7942Adj. R2 = 0.7844SE = 3.0892N = 23Holmes and her colleague, John Briars, CFA, discuss the implication of the model and how they might improve it. Holmes is fairly satisfied with the results because, as she says “the model explains 78.44 percent of the variation in the dependent variablE.” Briars says the model actually explains more than that.Briars asks about the Durbin-Watson statistiC.Holmes said that she did not compute it, so Briars reruns the model and computes its value to be 2.1073. Briars says “now we know serial correlation is not a problem.” Holmes counters by saying “rerunning the model and computing the Durbin-Watson statistic was unnecessary because serial correlation is never a problem in this type of time-series model.”Briars and Holmes decide to ask their company’s statistician about the consequences of serial correlation. Based on what Briars and Holmes tell the statistician, the statistician informs them that serial correlation will only affect the standard errors and the coefficients are still unbiaseD.The statistician suggests that they employ the Hansen method, which corrects the standard errors for both serial correlation and heteroskedasticity.Given the information from the statistician, Briars and Holmes decide to use the estimated coefficients to make some inferences. Holmes says the results do not look good for the future of tea imports because the coefficient on (Tea Import)t − 1 is less than onE.This means the process is mean reverting. Using the coefficients in the output, says Holmes, “we know that whenever tea imports are higher than 41.810, the next year they will tend to fall. Whenever the tea imports are less than 41.810, then they will tend to rise in the following year.” Briars agrees with the general assertion that the results suggest that imports will not grow in the long run and tend to revert to a long-run mean, but he says the actual long-run mean is 54.545. Briars then computes the forecast of imports three years into the futurE.Part 5)With respect to the comments of Holmes and Briars concerning the mean reversion of the import data, the long-run mean value that:A) Briars computes is correct, but the conclusion is probably not accuratE.B) Briars computes is not correct, but his conclusion is probably accuratE.C) Holmes computes is not correct, and her conclusion is probably not accuratE.D) Briars computes is correct, and his conclusion is probably accuratE.

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