Fin 12 Term Project This project is a major component of the WAC portion of this course, and a significant portion of your final grade. The paper may be completed in groups of no more than four students (no exceptions). It should be typed and double-spaced and be between 12 and 15 pages in length. The report should contain the following sections; Table of Contents Executive Summary (one page) Statement of Problem Analysis & Methodology Discussion of Results Conclusion Tables and Charts should be included in the body of the paper. The paper will be graded on (i) its professionalism, e.g., grammar, presentation, and (ii) the correctness of its analysis. The project is due on June 11, 2009. It will be returned on June 15 with detailed comments regarding possible revisions. Assignment Rediform Concrete is considering a $5 million capital investment for a factory to manufacture formed concrete products, such as patio stones, mobile home stones, and lawn decorations. The proposed factory will generate annual sales between $2 million and $5 million. After-tax fixed costs are $500k per year and after-tax variable costs are 50% of sales. Therefore, annual after-tax cash flow for the project is (0.5)Sales. The expected life of the project is 5 years and the salvage value depends on land prices at the end of five years. The factory would be built on Palmetto Rd., near the Sunshine Expressway. A new freeway exit is being planned for the Sunshine Expressway. If the exit is built at Palmetto Rd., the salvage value of the factory will be $3 million. If the exit is located at one of the two competing roads, the salvage value will be $1 million. Ignore depreciation in your calculations. Other data: The firm has estimated the level of systematic risk to be expected return on the market is Prepare an analysis that examines the economic break-even for this project. Also, prepare an analysis that examines the projects sensitivity to salvage value. RM =12% ß P = 0.75 , the RF = 4% , and the risk-free rate of return is
