Reto S.A.

In: Business and Management

Submitted By lamont97
Words 1059
Pages 5
Reto S.A.
Question 1:
Since we are initially ignoring the effects of taxes and do not know the required return, (we initially know only that debt costs 8% but are not provided any information regarding equity costs) the only available option is to use either a non-time value based evaluation or the internal rate of return:
|Cash Flow |Time | |Amount |
| | | | |
|Equipment Cost |0 |SFr |-600000 |
| | | | |
|Revenue |1-10 | |2000000 |
|Less Commissions-15% | | |-300000 |
|Less Materials | | |-600000 |
|Less Labor | | |-900000 |
| | | | |
|Before Tax Cash Flow | |SFr |200000 |
| | | | |
|Internal Rate of Return | | |31.11% |

Question 2:
Introducing taxes to the problem will change the annual cash flows although they remain an annuity since the depreciation is assumed to be an equal amount each year:
|Cash Flow |Time | |Amount |
| | | | |
|Equipment Cost |0 |SFr |-600000 |
| | | | |
|Revenue…...

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