cozy cards should devote in the envelope machine that would enable them to produce their bear envelopes. Currently the purchase of envelopes is a significant cost of
Friendlys operations, costing the comp any(prenominal) $1.5 million a year. By bringing the envelope manufacturing in house Friendly could greatly decrease their costs and increase the value of the firm as the project has a positive net present value. For the NPV synopsis it was mistaken that production would not decrease over meter and the expenses would remain constant, implying that the annual increase in profits provided by the investment would remain at $218,000 for all 8 old age of the machine life. As no residual value was accustomed for the machine after the 8 years of production it was assumed the machine would no longer be of any value. The charge per unit of return for the project was assumed to be make up to the weight average cost of capital for the firm as a whole. Cost of equity was calculated by taking the payout to shareholders in 1987 of $99,000
(Payout = Net income retained earnings = 784,000 (1,990,000 1,305,000) = $99,000)
divided by the grocery value of the firm plus the projected growth in dividends.
Although the firm does not intend to pay out any dividends in the next three years it is assumed that in the long-run dividends will be increased by a rate equal to the growth in sales which is predicted to be 20%. The proportion of debt financing was assumed to be equal to long-term debt obligations. Although the bank loans would also be interest attitude debt as they were only taken temporarily around steep sales periods, which the end of December would be, they were not included. The NPV of the project was put to be positive being $447,726.64. This implies that this is a highly gainful project that will increase shareholder value by $447,726.64 and it should therefore be implemented. As Friendly Cards is experiencing pecuniary problems at this point in time the...If you want to bring on a full essay, order it on our website: Orderessay
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