John Crockett Furniture Company is considering adding a new line to its product mix, and the capital budgeting analysis is being conducted by Joan Samuel, a recently graduated finance MBA. The production line would be set up in unused space in Crockett’s main plant. The machinery’s invoice price would be approximately $200,000, another $10,000 in shipping charges would be required, and it would cost an additional $30,000 to install the equipment. Further, the firm’s inventories would have to be increased by $25,000 to handle the new line, but its accounts payable would rise by $5,000. The machinery has an economic life of 4 years, and Crockett has obtained a special tax ruling that places the equipment in the MACRS 3 year class. The machinery is expected to have a salvage value of $25,000 after 4 years of use. The new line would generate $125,000 in incremental net revenues (before taxes and excluding depreciation) in each of the next 4 years. The firm’s tax rate is 40% and its overall weighted average cost of capital is 10%.a)Construct the project’s cash flows over its 4 year life. Based on these cash flows, what are the project’s NPV and IRR? Do these indicators suggest that the project should be undertaken?b)Assume now that the project is a replacement project rather than a new or expansion, project. Describe how the analysis would differ for a replacement project.c)Explain what is meant by cash flow estimation bias. What are some steps that Crockett’s management could take to eliminate the incentives for bias in the decision process?d)In an unrelated analysis, Joan was asked to choose between the following two mutually exclusive projects:Expected Net Cash Flowyear Project S Project L-100,00033,50033,500- 33,500- 33,500The project provides a necessary service, so whichever one is selected is expected to be repeated into the foreseeable future. Both projects have a 10% cost of capital.(1)what is each project’s initial NPV without replication? Can you use the information to determine which project should be chosen? Explain.(2)Now apply the replacement chain approach to determine the project’s extended NPVs. Which project should be chosen? Explain.(3) Repeat the analysis using the equivalent annual annuity approach. Which project should be chosen? Explain.(4)Now assume that the cost to replicate Project S in 2 years will increase to $105,000 because of inflationary pressures. How should the analysis be handled now, and which project should be chosen? Explain.e)Crockett is also considering another project that has a physical life of 3 years, that is, the machinery will be totally worn out after 3 years. However, if the project were abandoned prior to the end of 3 years, the machinery would have a positive salvage value. Here are the project’s estimated cash flows:year Initial Investment & Operating CFs End-of-Year Net Abandonment Value5,0003,1002,0000 Using the 10% cost of capital, what is the project’s NPV if it is operated for the full 3 years? Would the NPV change if the company planned to abandon the project at the end of year 2? At the end of year 1? What is the project’s optimal life? Explain. Additional Requirements Level of Detail: Show all work

1. What is each project’s initial npv without replication?Answer: The NPVs, found with a financial calculator, are calculated as follows:Input the following: CF0 = -100000, CF1 = 60000, NJ = 2,…

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1. John entered into a 2 year agreement with the Blue Mountains City Council to lease a café at a popular National Park scenic spot famous for its views overlooking the Grose Valley. The café was very successful but after 6 months a sewerage disposal works was set up near the café. Business suffers badly and after seeing his customers decrease rapidly John leaves the business and refuses to pay any further rent. The Council sues. Discuss. Also, is there any further evidence that may make your decision as to the outcome any clearer? 

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John has graduated from a local university with a degree in industrial management and joined his father’s company as executive vice-president of operations. Dad wants John to prove himself and decided to assign a project to John. 20% of the company’s sales are derived from sale of swimming pool kits for homes. The company does not install these kits, buyers have to find their own installing experts. John has to determine whether or not they should get into that business. 

John remembered a method called the Work Breakdown Structure (WBS) that he thought might serve as a useful tool to estimate costs. Also, the use of such tool can be passed along to the site supervisor to help evaluate the performance of work crews. Help John to create WBS and come up with a cost estimate for installing home swimming pool kits at the front-yard or back-yard of homes. 

Prepare WBS which indicates all the deliverables of installing swimming pool kits at homes.

Assign an approximate duration and cost for each WBS element.

List what are risks that can be identified in this project.

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John is a warehouse supervisor who works for a national company that sells high-quality (and very expensive) electronics – e.g., HD television sets, business and home computers, and business and personal laptops. John has a high school education, and has been employed by the company for 10 years. Recently, John was promoted to an exempt (salaried) low-level management position; his present annual salary is $60,000. Over the past two months, John has been stealing HD television sets from his employer – and reselling them. To date, he has stolen $15,000 in merchandise. When John’s wife – Jane – takes note of the rapid growth in the family’s savings account, she asks John about the source of the money. John’s astonished response is: “Jane! Are you kidding? Consider the extra money as a company bonus — well, it’s sort of a bonus anyway….Look, Jane, while I make better money than I used to, it’s not enough compensation for all the stuff I do. This company can afford to pay me far more than what they pay – and they choose not to. The way I look at it, I’ve earned this extra money! It’s a well-deserved and hard-earned bonus, Jane. You know that we can barely pay our bills. I’m doing what is best for our family! I have to do what I think is best for my family, even if I know it might be wrong!”

What are the utility ethics raised in this situation? Be specific! Please provide reference.

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