university of southern california Operations And Supply Chain Management Assignment Help - risk

Question - 1. W hat are the three types of risk that are relevant in capital budgeting? 2. How is each of these risk
types measured, and how do they relate to one another?
Why is corporate finance important to all managers?



MINI CASE

Shrieves Casting Company is considering adding a new line to its product mix, and the capital
budgeting analysis is being conducted by Sidney Johnson, a recently graduated MBA. The production
line would be set up in unused space in Shrieves’ main plant. The machinery’s invoice price would be
approximately $200,000; another $10,000 in shipping charges would be required; and it would cost an
additional $30,000 to install the equipment. The machinery has an economic life of 4 years, and
Shrie ...Read More ves has obtained a special tax ruling which places the equipment in the MACRS 3-year class.
The machinery is expected to have a salvage value of $25,000 after 4 years of use. The new line
would generate incremental sales of 1,250 units per year for four years at an incremental cost of $100
per unit in the first year, excluding depreciation. Each unit can be sold for $200 in the first year. The
sales price and cost are expected to increase by 3% per year due to inflation. Further, to handle the
new line, the firm’s net operating working capital would have to increase by an amount equal to 12%
of sales revenues. The firm’s tax rate is 40 percent, and its overall weighted average cost of capital is
10 percent. ...Read Less

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