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Assignment1: with excel attachment,General Battery Company (GBC) is planning to open Battery Exchange Centers throughout the U.S. where All-Electric car owners can exchange discharged batteries for fully charged ones in five minutes. They have developed and tested a few prototype centers for the past year at a total cost of $500,000. In 2012, they plan to open 100 of these in California. Each year thereafter they plan to open 250 additional units. , ,Capital Investment will be initially needed for each center as follows: ,Batteries: 100 * $5,000 each , Chargers: 25 at $250 each , Transfer machines: 10 at $500 each ,The investment for new centers will be incurred in the year prior to the year in which centers are opened. For instance, the investment for the 100 centers planned for 2012 will be incurred in 2011 and similarly through 2016 when the investment will be incurred in 2015. The investment in the 5th year or 2016 will be $500,000,000. Each center will need the following. , Building and grounds for each center will be leased at an annual cost of $50,000 for each center. ,Administrative expense for each center is estimated at $250,000 annually. ,Each year, 20% of the batteries will have to be refurbished at a cost of $2,500 each. This should be considered as investment. ,Each recharging center is expected to generate revenue of $6,000 per day. This revenue per center is expected to hold constant over the timeframe of the project. ,Dailyoperational costs including utilities, labor and materials costs, but excluding batteries, will be $4,000 per station. ,Working capital of $2,500,000 is needed for Cash, Inventory, Accounts Payable, and Accounts Receivable starting in 2011and will increase by 15% per year. ,Corporate Administrative expense is $5,000,000 annually throughout the planning period and this includes research and development. Marketing is planned at $1,000,000 annually. , ,The value of each center at the end of five years is expected to be $1 million each. Consider this a salvage value in year 5. , ,Depreciation should be simplified by simply dividing the current investment in place by 5, which approximates five year straight line depreciation. , ,The corporate MARR is 15% and tax rate is 18%. , ,Based on a five year plan and with the data given below for each center, prepare an analysis and recommendation as to whether this project should be funded. A spreadsheet containing a Data Block for this problem is attached. Check it for accuracy. , ,1. Prepare a income statement and free cash flow statement for the proposed project. ,2. Design and test alternative scenarios concerning the project. ,3. Make and state any assumptions, if needed. ,Assignments 2:,Castille Pharmaceuticals (CP) currently leases testing equipment for use during the production of a product at a cost of $61,000 annually that includes all maintenance expenses. The product line produced on the machine has revenues of $100,000 annually. Three options need to be evaluated. ,1. Continuing to lease the present machine at the same cost, ,2. Purchase the existing machine (refurbished by the vendor at the vendor’s expense) at a cost of $150,000. Maintenance costs are estimated at $18,000 annually. ,3. Purchase a later model that is more accurate for $200,000. Annual maintenance costs are estimated at $18,000. Cost reductions in labor and fewer bad batches are estimated at $36,000 annually. Installation and training for this new machine would be $50,000 in year 0, which is also depreciable. , ,Both of the machines are guaranteed to have a five year life span with a salvage value of 15% of the machine’s purchase price, which will be received at the end of the fifth year. ,Use straight line depreciation and a tax rate of 35%. ,Assuming that MARR is 10% and all maintenance costs and production savings are incurred at the end of the year, should the present lease be continued, or one of the two machines be purchased? Base your decision on the comparative present worth of each of the three alternatives. ,