Prepare Capital Budgeting Analysis Assignment
Order ID |
53563633773 |
Type |
Essay |
Writer Level |
Masters |
Style |
APA |
Sources/References |
4 |
Perfect Number of Pages to Order |
5-10 Pages |
Description/Paper Instructions
Prepare Capital Budgeting Analysis Assignment
TEK Tyres, Inc. Proposal Background TEK Tyres, Inc. is a large-scale company manufacturing tyres in.
TEK Tyres, Inc. Proposal
Background
TEK Tyres, Inc. is a large-scale company manufacturing tyres in the United States. After extensive research and development, TEK Tyres, Inc. has recently developed a new tyre, the SuperTread, and must decide whether to make the investment to produce. The tyre would be ideal for drivers doing a large amount of wet weather and off-road driving in addition to normal freeway usage. The research and development costs so far have totalled $40 million. The SuperTread would be put on the market at the beginning of next year (Year 1), and TEK expects it to stay on the market for a total of four years (from Year 1 to Year 4). Test marketing costing $20 million has spent (tax deduction on this test marketing cost cannot be claimed) and shown that there is a significant market for a SuperTread-type tyre.
As the Chief Financial Officer at TEK Tyres, David Campbell, has been asked by the board of directors to evaluate the SuperTread project and provide a recommendation on whether to go ahead with the investment. He was concerned with the discount rates used in the analysis, as well as various comments he had received from other executives at TEK Tyres whom he had asked to review the proposal.
Mr. Campbell assumes that the initial investment will occur immediately (Year 0), and operational cash flows will occur at beginning of next year (Year 1). TEK Tyres must initially invest $130 million in production equipment to make the SuperTread in Year 0. This equipment can be sold for $60 million at the end of four years (Year 4). TEK Tyres intends to sell the SupperTread to two distinct markets, original equipment manufacturer market and replacement market.
1) The original equipment manufacturer (OEM) market: The OEM market consists primary of the large automobile companies (like General Motors) that buy Tyres for new cars. In the OEM market, the SuperTread is expected to sell for $41 per tyre in Year 1. The variable cost to produce each tyre is $18 in Year 1.
2) The replacement market: The replacement market consists of all Tyres purchased after the automobile has left the factory. This market allows higher margins; TEK Tyres expects to sell the SuperTread for $62 per tyre there in Year 1. Variables costs are the same as in the OEC market.
TEK Tyres intends to raise prices at 1 percent above the inflation rate from Year 2 to year 4 in the OEM and the replacement market; variable costs will increase at 1 percent above the inflation rate from Year 2 to Year 4 as well. In addition, the SuperTread project will incur $25 million in marketing and general administration costs in the first year (Year 1). This cost is expected to increase at the inflation rate in the subsequent years (Year 2 to Year 4).
TEK Tyres' corporate tax rate is 35 percent. Annual inflation is expected to remain constant at 3.25 percent over the life of the project. Automotive industry analysts expect automobile manufacturers to produce 6.2 million new cars in Year 1 and production will grow at 2.5% per year thereafter. Each new car needs four tyres (the spare tyres are undersized and are in a different category). TEK Tyres expects the SuperTread to capture 11 percent of the OEM market from year 1 to year 4.
Page 3 of 3
Industry analysts estimate that the replacement tyre market size will be 32 million tyres in Year 1 and that it will grow at 2 percent annually. TEK Tyres expects the SuperTread to capture an 8% market share.
The production equipment would be depreciated using the straight-line depreciation method over 4 years to a zero balance. The immediate initial working capital requirement is $11 million in Year 0. Thereafter, the net working capital requirements will be 20% of sales. At the end of year 4, TEK Tyres will get the working capital back.
In last year, the TEK Tyres used a 11% discount rate to evaluation a new project, AllTyres. However, Mr. Campbell believes the overall risk of SuperTread is 3% higher than the AllTyres.
Mr. Campbell has hired you as a financial consultant for TEK Tyres. You are expected to answer the following questions and resolve any of his other concerns.
Report requirements:
Mr. Campbell requires you to prepare capital budgeting analysis to show the directors in a meeting to be held soon. Based on the case study, please answer all of the following questions in your report.
- Using the financial and qualitative information provided in the case, estimate the incremental free cash flow of this project in each year (from Year 0 to Year 4). Please show all your working. (45 marks)
- The depreciation is a non-cash charge. Do you need to consider the depreciation in the capital budgeting process? Why? Explain. (15 marks)
RUBRIC
QUALITY OF RESPONSE |
NO RESPONSE |
POOR / UNSATISFACTORY |
SATISFACTORY |
GOOD |
EXCELLENT |
Content (worth a maximum of 50% of the total points) |
Zero points: Student failed to submit the final paper. |
20 points out of 50: The essay illustrates poor understanding of the relevant material by failing to address or incorrectly addressing the relevant content; failing to identify or inaccurately explaining/defining key concepts/ideas; ignoring or incorrectly explaining key points/claims and the reasoning behind them; and/or incorrectly or inappropriately using terminology; and elements of the response are lacking. |
30 points out of 50: The essay illustrates a rudimentary understanding of the relevant material by mentioning but not full explaining the relevant content; identifying some of the key concepts/ideas though failing to fully or accurately explain many of them; using terminology, though sometimes inaccurately or inappropriately; and/or incorporating some key claims/points but failing to explain the reasoning behind them or doing so inaccurately. Elements of the required response may also be lacking. |
40 points out of 50: The essay illustrates solid understanding of the relevant material by correctly addressing most of the relevant content; identifying and explaining most of the key concepts/ideas; using correct terminology; explaining the reasoning behind most of the key points/claims; and/or where necessary or useful, substantiating some points with accurate examples. The answer is complete. |
50 points: The essay illustrates exemplary understanding of the relevant material by thoroughly and correctly addressing the relevant content; identifying and explaining all of the key concepts/ideas; using correct terminology explaining the reasoning behind key points/claims and substantiating, as necessary/useful, points with several accurate and illuminating examples. No aspects of the required answer are missing. |
Use of Sources (worth a maximum of 20% of the total points). |
Zero points: Student failed to include citations and/or references. Or the student failed to submit a final paper. |
5 out 20 points: Sources are seldom cited to support statements and/or format of citations are not recognizable as APA 6th Edition format. There are major errors in the formation of the references and citations. And/or there is a major reliance on highly questionable. The Student fails to provide an adequate synthesis of research collected for the paper. |
10 out 20 points: References to scholarly sources are occasionally given; many statements seem unsubstantiated. Frequent errors in APA 6th Edition format, leaving the reader confused about the source of the information. There are significant errors of the formation in the references and citations. And/or there is a significant use of highly questionable sources. |
15 out 20 points: Credible Scholarly sources are used effectively support claims and are, for the most part, clear and fairly represented. APA 6th Edition is used with only a few minor errors. There are minor errors in reference and/or citations. And/or there is some use of questionable sources. |
20 points: Credible scholarly sources are used to give compelling evidence to support claims and are clearly and fairly represented. APA 6th Edition format is used accurately and consistently. The student uses above the maximum required references in the development of the assignment. |
Grammar (worth maximum of 20% of total points) |
Zero points: Student failed to submit the final paper. |
5 points out of 20: The paper does not communicate ideas/points clearly due to inappropriate use of terminology and vague language; thoughts and sentences are disjointed or incomprehensible; organization lacking; and/or numerous grammatical, spelling/punctuation errors |
10 points out 20: The paper is often unclear and difficult to follow due to some inappropriate terminology and/or vague language; ideas may be fragmented, wandering and/or repetitive; poor organization; and/or some grammatical, spelling, punctuation errors |
15 points out of 20: The paper is mostly clear as a result of appropriate use of terminology and minimal vagueness; no tangents and no repetition; fairly good organization; almost perfect grammar, spelling, punctuation, and word usage. |
20 points: The paper is clear, concise, and a pleasure to read as a result of appropriate and precise use of terminology; total coherence of thoughts and presentation and logical organization; and the essay is error free. |
Structure of the Paper (worth 10% of total points) |
Zero points: Student failed to submit the final paper. |
3 points out of 10: Student needs to develop better formatting skills. The paper omits significant structural elements required for and APA 6th edition paper. Formatting of the paper has major flaws. The paper does not conform to APA 6th edition requirements whatsoever. |
5 points out of 10: Appearance of final paper demonstrates the student’s limited ability to format the paper. There are significant errors in formatting and/or the total omission of major components of an APA 6th edition paper. They can include the omission of the cover page, abstract, and page numbers. Additionally the page has major formatting issues with spacing or paragraph formation. Font size might not conform to size requirements. The student also significantly writes too large or too short of and paper |
7 points out of 10: Research paper presents an above-average use of formatting skills. The paper has slight errors within the paper. This can include small errors or omissions with the cover page, abstract, page number, and headers. There could be also slight formatting issues with the document spacing or the font Additionally the paper might slightly exceed or undershoot the specific number of required written pages for the assignment. |
10 points: Student provides a high-caliber, formatted paper. This includes an APA 6th edition cover page, abstract, page number, headers and is double spaced in 12’ Times Roman Font. Additionally, the paper conforms to the specific number of required written pages and neither goes over or under the specified length of the paper. |
|
|
GET THIS PROJECT NOW BY CLICKING ON THIS LINK TO PLACE THE ORDER
Also, you can place the order at www.collegepaper.us/orders/ordernow / www.phdwriters.us/orders/ordernow
|
Do You Have Any Other Essay/Assignment/Class Project/Homework Related to this? Click Here Now [CLICK ME]and Have It Done by Our PhD Qualified Writers!! |
|
|
PLACE THE ORDER WITH US TODAY AND GET A PERFECT SCORE!!!