Problem 1
Ganges Express, a package delivery company, operates a fleet of Volvo trucks at
one terminal where the lease of 175,000 euros per year is expiring. They had
planned to set up another lease with Volvo for next three years at a cost of 200,000
euros per year in operating expenses. This is the total cost for the entire fleet. A
Scania sales rep just called to offer a discounted price of 700,000 euros for Ganges
to purchase a new fleet (instead of leasing). If the new fleet is purchased, then
Ganges expects to sell the Scania trucks at book value at the end of three years.
They use straight-line depreciation over 5 years for new vehicles. Assume the tax
rate is 30% and the discount rate for Ganges Express is 10%. Ignore inflation.
(Note I don’t’ need help on Part 1 and 2).
Part 3
We next want to find the projected Free Cash Flows immediately and for
years 1-3.
Be sure to enter all of you answers in thousands of Euros without commas or
currency signs. Round your answers to the closest thousands, e.g., if you
answer is 12,634 then you would enter 13 and if your answer was -4,228.49
you would enter -4.
Remember that Check Answer checks all of the questions in this Part at the
same time.
What are the projected Free Cash Flows immediately in thousands of Euros?
What are the projected Free Cash Flows for year 1 in thousands of Euros?
What are the projected Free Cash Flows for year 2 in thousands of Euros?
What are the projected Free Cash Flows for year 3 in thousands of Euros?
Part 4
We next want to look at the discount rate under which Ganges Express would
purchase the Scania trucks.
Enter your answer as a percentage with one decimal place, e.g., if you
answer is 6.25% then you would enter 6.3 and if your answer was 41.81%
then you would enter 41.8. Enter 0 if there is no positive discount rate under
which Ganges would pursue this option.
What is the highest discount rate under which Ganges Express would choose
to purchase the Scania trucks? Ensure that spreadsheet cell formatting is
changed to decimal numbers as required
Part 5
To conclude this analysis, we what want to calculate the Payback Period for
the purchase of Scania trucks.
What is the Payback Period for the purchase of Scania trucks? Enter your
answer rounded to two decimal places of a year, e.g., if your answer is
13.784 years, enter 13.78 and if your answer is 9.125 enter 9.13.
Problem 2
Murray Parts is a distributor of automotive spare parts for dealers and repair
shops. They are considering a launch of an online sales initiative directly to
do-it-yourself (DIY) consumers.
The marketing department invested an additional 100,000 dollars to enable
online orders as part of a website upgrade that is nearing completion. The
time horizon for projected cash flows is three years and the post Year
3 perpetuity is described as Year 4+. The table below shows some of the
projections (incremental revenue, COGS, transportation costs, and working
capital) anticipated for this initiative in thousands of dollars.
Murray needs warehouse space and staff for the handling and packing of
online orders. To do so, they would discontinue the current kitting and
packaging operations they have been providing for parts retailers and use
the warehouse space and workers for the online business instead. The kitting
and packaging operation consistently provides annual revenues of 210,000
dollars and requires 120,000 dollars in warehouse labor. Assume the tax rate
is 40% and the discount rate for Murray Parts is 10%. Ignore inflation.
Answer the following questions regarding your analysis of the online sales
opportunity. Unless noted otherwise, round your answer to the nearest
thousand and provide answers in thousands of dollars, e.g., if your answer is
10,550 dollars then you would enter 11 and if your answer was -72,499 then
you would enter -72. Remember that any cash flow can be a negative value,
including lost revenue and negative profit, a.k.a. loss.
Part 2
What is the projected EBITDA for year 1 in thousands of dollars?
Part 4
Now consider the Year 1 requirements of 50,000 in Accounts Receivable,
140,000 in Inventory and 80,000 in Accounts Payable. Given your calculation
of the initial Net Working Capital Investment in the previous question, what is
the Net Working Capital Investment required for Year 1 in thousands of
dollars?
Part 5
Considering the Free Cash Flows through Year 3 and adding a Terminal Value
based on the perpetuity (Year 4+) Free Cash Flows to the Year 3 Free Cash
Flow, what is the NPV for online sales initiative in thousands of dollars?
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