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
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.
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 project’s sensitivity to salvage value.
ß P = 0.75
RF = 4%
, and the risk-free rate of return is