The certified management accountant (CMA) has been requested to analyze two lucrative and possible new items for the New Products Review Committee (NPRC) of High Mountain Technologies. The case emphasizes on the use of the net present value method to capital budgeting, deciding an adequate cost of capital and capital rationing.
Beta for Survillance
Stock index, Sky Hawk Share Price, Stock Index Return , Share Returns, Unlevered BETA
Terminal Cash flow, Free Cash Flows, Financing Side effects of Debt ( Tax Shield or Tax savings), Free Cash Flow Combined with Tax Shield effects),
Payback period , NPV, IRR, PI
Intial Cash Outlay, Stabalized Period, Depreciation Schedule Building, Depreciation Schedule Equipment, Free Cash Flows Calculation, Terminal Cash flow,
Free Cash Flows, Financing Side effects of Debt ( Tax Shield or Tax savings), Free Cash Flow Combined with Tax Shield effects),
Cost of GPS
Industry Averages, Average of five listed companies beta
Unlevered Beta , Levered Beta , Risk free Rate, Cost of debt, Market Premium , Corporate Tax rate, Pre Tax cost of Debt, After tax cost of debt, Percentage value
Cost of Capital
Cost of Capital survelinace
Discuss the rationale of how free cash flows are estimated. Based on the information provided in the case, estimate both projects free cash flows over the 10 years investment period.
Estimate the appropriate costs of capital for the GPS transmitter and surveillance aircraft projects.
Perform a capital budgeting analysis by applying various project ranking techniques to both projects. As well, address advantages and disadvantages of each ranking technique applied in analysis.
(Conduct a risk analysis by applying appropriate techniques and identify critical financial or economic factors in this project. Discuss and suggest how HMT manages these critical factors.
If GPS transmitter project were to be considered by the firm, how can this project be modified to become financially feasible? Discuss potential real options pertinent to this project.
Which project is worthwhile to HMT, and how would you justify the decision?