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The board of Samad Corp., a family-owned corporation

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Question;4-1. The board of Samad Corp., a family-owned corporation, wishes to sell the business and is considering three offers:1. Get paid $568,000 immediately.2. $200,000 cash now plus an annual installment for 10 years at the end of the year, or a total of $800,000.3. An offer to manage the business for 10 years that would yield $96,000 cash at the end of the year for 10 years. The company would have to make a $20,000 investment upfront to make certain changes for the management agreement. The total cash Samad would receive is $940,000.Samad wants an 11% rate of return on its investments.Based on the numbers, which offer should Samad?s board accept? Show your supporting computations.4-2. O?Donnell Corp. is need of new machinery for its plant and is considering two different brands as replacements. Information about the two options are as follows:Correa Co. Grant IncCost (cash price) $100,000 $90,000Operating costs per year $7,000 $8,000Estimated useful life 8 8Estimated residual (salvage) value as percent of cost 20% 10%Assume all other variables are identical for the two machines. O?Donnell?s cost of capital is 8%.4-2a. Analyze and compare the relative cost of the two machines. Costwise, which is better?4-2b. What other factors should O?Donnell consider besides the numbers?

 

Paper#42099 | Written in 18-Jul-2015

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