Download Aurora Case.ppt PDF

TitleAurora Case.ppt
Tags Economies Depreciation Business Economics
File Size255.7 KB
Total Pages11
Document Text Contents
Page 6

Paying a dividend to shareholders

Whether management should pursue all
positive net-present-value projects?

6

Page 10

Cash flows from investing in the Zinser 

 Net sales: Year 1 sales ($26.611 million) equals price per pound ($1.02/lb.)
times capacity per week (500,000 lb./week) times 52 weeks in a year.
Subsequent years’ forecasts are grown by management’s guidance for growth
(2%) and the inflation rate of 1%.

 Materials cost and conversion cost: Materials cost equals the materials cost
per pound ($0.45/lb.) times the volume for the year. Conversion cost equals
$0.43/lb. times volume less power and maintenance cost savings of $0.03/lb.
Case Exhibit 5 shows that the cost of returns is expected to increase by 10%,
or $0.0077/lb. ($0.0844/lb. − $0.0768/lb.). Thus, the conversion cost for Zinser
equals $0.4077/lb. ($0.43 – 0.03 + 0.0077).

 Inventory: Inventory equals COGS divided by number of days in a calendar
year (360) times number of days of inventory (20). The cash flow equals the
change in inventory level each year until year 10, when the inventory level is
recovered.

10

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