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Problem #1: P10-1 (Gitman, 2009, p. 486) Caradine Corp., a media services firm with net earnings of $3,200,000 in the last year, is considering...
P10-1 (Gitman, 2009, p. 486) Caradine Corp., a media services firm with net earnings of $3,200,000 in the last year, is considering several projects: Project Initial Investment Details A $ 35,000 Replace existing office furnishings. B 500,000 Purchase digital film-editing equipment for use with several existing accounts. C 450,000 Develop proposal to bid for a $2,000,000 per year 10-year contract with the U.S. Navy, not now an account. D 685,000 Purchase the exclusive rights to market a quality educational television program in syndication to local markets in the European Union, a part of the firm’s existing business activities The media services business is cyclical and highly competitive. The board of directors has asked you, as chief financial officer, to do the following: Evaluate the risk of each proposed project and rank it “low,” “medium,” or “high.” Comment on why you chose each ranking. P10-2 (Gitman, 2009, p. 487) Etsitty Arts, Inc., a leading producer of fine cast silver jewelry, is considering the purchase of new casting equipment that will allow it to expand the product line into award plaques. The proposed initial investment is $35,000. The company expects that the equipment will produce steady income throughout its 12-year life. If Etsitty requires a 14% return on its investment, what minimum yearly cash inflow will be necessary for the company to go forward with this project? How would the minimum yearly cash inflow change if the company required a 10% return on its investment?
