1 answer

Please read the introduction and respond to which financing option the firm should use. I believe...

Question:

CarGenie, an automobile manufacturer, wants to offer a one-time line of specialized vehicles. To produce the vehicles, CarGen

The following table will populate based on prior answers. Year 1 Year 2 Year 3 Year 4 Project 5,000,000 $ 7,000,000 8,000,000

Please read the introduction and respond to which financing option the firm should use. I believe it will only take a second to complete, I am just confused! Thank you so much I am desperate for a quick response!

CarGenie, an automobile manufacturer, wants to offer a one-time line of specialized vehicles. To produce the vehicles, CarGenie will need to invest $20 million upfront on January 1, 2019 in inventory (the only expense in producing the vehicles). CarGenie expects that once they begin production it will take 4 years to produce the vehicles. Over the course of the four years, customers will be able to reserve a vehicle with a down payment. Thus, CarGenie expects this project to have cash inflows of $5 million during the first year, $ 7 million during the second year, $8 million during the third year, and, finally, $25 million during year 4 when they deliver the vehicles. Thus, the project results in income of approximately $25 million over the four years. CarGenie needs to finance the entire $20 million initial amount to fund their project. CarGenie has five options for financing: Long-term Note, Bond A, Bond B, Bond C, and a Stock Issuance.
The following table will populate based on prior answers. Year 1 Year 2 Year 3 Year 4 Project 5,000,000 $ 7,000,000 8,000,000 $ 25,000,000 Long-term Note (5,460,392) (5,460,392) $ (5,460,392) $ (5,460,392) Bond A (464,000) (464,000) (464,000) $ (23,200,000) Bond B $ (1,424,000 $ (1,424,000 $ (1,424,000) $ (17,800,000) Bond C (1,000,000 $ (1,000,000 $ (1,000,000 $ (20,000,000) Stock Issuance (27,752,000) Based on the cash flows, determine whether each of the following funding sources are a viable option for the firm. Long-term Note Bond A Bond B Bond C Stock Issuance Based on this and prior answers, which funding choice do you believe to be the best option? Why?

Answers

Bond A Stock insurance Value in 000 PV Inflow Year 0 0 0 0 Assume Discount rate 10% Value in000 PV 5000 4545 7000 5785 8000

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