Mgt 430

The intention of this information is to assess Wheel Industries on one of their procedures concerning long-term investment openings. This report will present a comprehensive illustration of the employment of several methods for evaluating capital task, comprising the one weighted average cost of capital of the corporation, the expected cash flows for the tasks and the methods employed for project choosing. This information will also include assessments of two other tasks, in account of the danger of future investments.

Situation: Company Data

Wheels Industries is considering a three-year expansion project, Project A. The project requires an initial investment of $1.5 million. The project will use the straight-line depreciation method. The project has no salvage value. It is estimated that the project will generate additional revenues of $1.2 million per year before tax and has additional annual costs of $600,000. The Marginal Tax rate is 35% (Argosy, 2014).

We must first begin by looking for the Depreciation one of this task, In order to attain this we will employ the method: Depreciation = price of the asset – Life on the asset /salvage value.

We recognize that we in the first place have no salvage price, so we will divide the price of asset with life on the asset.

=1,500,000/ 3

= 500,000

The depreciation found is 500,000 per each year. The next level is to do an estimate of Cash flows:

Revenue- 1,200,000

Minus Cost- 600,000

Minus Depreciation- 500,000

Proceeds- 100,000 (income before taxes)

Minus taxes (35%) 35,000

Earnings after taxes 65,000

Plus depreciation 500,000

Then Cash flow after being taxed 565,000

The computation of Cash flow affirms that after taxes that Wheel Industries will contain is $565,000 cash flows.

Wheel has paid a dividend of $2.50 per share, which is expected to grow at a constant rate of 6% per year for the life of the stock....