The information below presents current proforma information and information related to the purchase of a new machine.
The assignment is to calculate current financial ratios as requested and then after the purchase of a new machine.
Answer the discussion questions at the end.
Current pro forma financial information
Sales Revenue 17,950,000$
Net Income 6,950,000$
Capital Assets at beginning of year 8,100,000$
Capital Assets at end of year 8,600,000$
Tax Rate 30%
Minimum Required Rate of Return 15%
Weighted Average Cost of Capital 9%
With the above financial information calculate the following:
Show your calculations and all answers to 2 digits of precision (EX 3.21%)
A) What is the Sales Margin?
B) What is the asset turnover?
C) What is the ROI (Return on Investment)?
D) What is the RI (Residual Income)?
E) What is the EVA (Economic Value Added)?
The manager of the plant in considering the purchase of a new machine.
Presented below is pro forma information if the new machine is purchased.
Cost of New Machine 2,300,000$
Additional Revenue 1,700,000$
Additional Net Income 850,000$
With the above added financial information calculate the following after purchase:
Show your calculations and all answers to 2 digits of precision (EX 3.21%)
Assume cost of machine will be added to both beginning and ending capital assets.
F) What is the Sales Margin?
G) What is the asset turnover?
H) What is the ROI (Return on Investment)?
I) What is the RI (Residual Income)?
J) What is the EVA (Economic Value Added)?
Discussion and analysis.
K) If the managers bonus were dependent on maximizing ROI would he take on the new machine? Why or why not?
L) If the goal is to maximize company wealth should the manager take on the new machine? Why or why not?
