BWFM5013 - Corporate Finance Case Study - Economics Assignment Help

Assignment Task

1. Do a qualitative size-up for Li.

2. If Li decided to invest, which financing option do you think is more appealing?

3. Fixed costs are not directly related to the level of production. Variable costs change in direct relation to volume of output. Assume the relationship is linear, what would the total variable cost be in the worst-case scenario?

4. Calculate the monthly mortgage payment for Li.

5. If Li used a mortgage to finance, what would be the net cash flow, net income, ROI, payback period and break-even point of this project in the best, medium and worst-case scenarios, respectively?

6. Would different financing-for example, 50-50 ownership-change your answers to question 5?

7. If Li had a required rate of return of 6 percent on this investment, what are the net present values of the best, medium, and worst-case scenarios, respectively? (Assume Li used the option of mortgage financing)

8. What is the sunk cost? Suppose Li had already paid $10,000 for the project, and then she found the NPV of all the future cash flows was only $6,000. Should Li drop the project (assuming there was no other investment opportunity available)

9. If you were Li’s business partner, what would be your concerns?

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