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The Lazy Mower Project

Refer to the file attached for the second case of "The Lazy Mower".

1. Prepare the performa statement showing the annual cash flows resulting from the Lazy Mower project?

2. How should the interest expenses of $400,000 be treated? Explain

3. Calculate the operating leverage entailed by this project. What does it indicate?

4. What type of contingency planning should Dan and Ron include to make the report comprehensive? Please explain the relevance of each suggestion?

Attachments

Solution Preview

See attached file.

Ques 1: Prepare the pro-forma statement showing the annual cash flows resulting from the Lazy Mower project?

Please see the attached file for the cash flow calculations.

Ques 2: How should the interest expenses of $400,000 be treated? Explain

Interest expense is a financing cost and is not included in the cash flows. The financing cost is incorporated in the discounting rate and when the cash flows are discounted, the effect of financing is taken into ...

Solution Summary

The solution explains the questions relating to Lazy Mower project and provides calculations for annual cash flows, treatment of interest expenses and operating leverage in an attached Excel sheet.

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