Read through the Sharon Pipe Case. Answer the following questions:
Q1) What is the decision facing Mr. Todd?
Q2) The accountant’s estimates in Exhibit 2 use the “most likely” sales projection in Exhibit 1 for each year. Is this appropriate?
Q3) Fill out the following information in the excel file.
Sharon Pipe, Inc.
Expected Output
Nominal discount rate
Tax rate
Expected Inflation
CurrentPuchase price per pound
Distribution Costs per pound
Purchase price
SV in 8 years
Straight-line depreciation years
Extra Credit – Construct the cash flows and calculate the NPV when there is no inflation. (Use excel template.)
Note – if you are more comfortable working on pen and paper, print out the excel sheet and submit the homework before class.
