# Case Study: Proforma Cash Flows And Valuation

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4 Pages

*Register to read the introduction…*Proforma Cash Flows & Valuation. The Gordon Company is considering starting up a new business line of paint. The equipment required to produce the paint will cost $1,600,000. It will cost an additional $200,000 to ship, install and prepare the equipment for operation. The cost of materials in permanent working capital amount to $320,000. They anticipate training expenditures of $30,000 that must be paid prior to operating the equipment. Marketing representatives say that the company should be able to produce and sell $1,200,000 per year. The cost of goods sold are anticipated to be 30% of sales. Incremental labor costs are $90,000 per year, maintenance costs are $25,000 per year and incremental overheads are anticipated to be $50,000. You must calculate depreciation. Miscellaneous costs aside from depreciation are $42,000 per year. This project has a life of 10 years and they estimate salvage value of the equipment at $160,000. The cost of capital for Gordon is normally 10% but this particular project is out of their normal expertise and they would like to add a 3% risk premium. The corporate tax rate for Gordon is 30%. •

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4- Find the Economic Order Quantity given the following:

The Carry Company is a Midsized ATV dealer in the West. He sells about 2,400 ATV’s a year. The cost of placing an order with its supplier is $600, the inventory carrying costs are $100 for each ATV, and the safety stock is 10 ATV’s. What is the Economic Order Quantity?

5- Find the Effective Annual Interest Rate given the following:

Max Payne is running a small business and is considering offering the following trade terms to free up cash: 2/10 net 40. What is the effective annual rate his customers will pay if they do not take the discount? Answers To Week 3