Payback, Accounting Rate of Return, Net Present Value, Internal Rate of ReturnFollow the format shown in Exhibit 12B.1 and Exhibit 12B.2 as you complete the requirement below.Blaylock Company wants to buy a numerically controlled (NC) machine to be used in producing specially machined parts for manufacturers oftrenching machines. The outlay required is $730,671. The NC equipment will last five years with no expected salvage value. The expected after-taxcash flows associated with the project follow:Year Cash Revenues Cash Expenses1$1,300,000$1,000,0001,300,0001,000,0001,000,0001,000,0001,000,00023451,300,0001,300,0001,300,000Required:Compute the Investment's Internal Rate of return. Enter as a percent. If required, round your answer to the nearest whole percent.IRR =%

IRR is the required rate of return for the project to have zero Net Present value.IRR can be…

Answered: . Blaylock Company wants to buy a…

Essentials Of Investments

11th Edition

ISBN:9781260013924

Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Chapter1: Investments: Background And Issues

Section: Chapter Questions

Problem 1PS

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A corporation is considering purchasing a new plant asset. The asset will cost $30,000. The corporation requires a 10% return on similar investments. The corporation plans to use the asse for 4 years and then sell it for the salvage value. The estimated salvage value of the asset in 4 years is $5,000. The corporation estimates that if purchased the new asset will provide addition net cash flows of $9,000 each year for 4 years (assume the cash flows occur at the end of the year): Calculate the net present value (you must include the calculation in order to receive credit) Should the business purchase the asset?
Carson Trucking is considering wether to expand its regional service center. The exapnsion will require expensiture of $10,000,000 for new service equipment and will generate annual net cash inflows by reducing operating costs $ 2,500,000 per year for each of the next 8 years. In year 8, the firm will also get back a cash flow equal to the salvage value of the equipment, which is valued at $1,000,000. Thus in year 8, the total cash inflow is $3,500,000. Assuming an 11% discount rate, calculate the project's NPV: a. $3,500,000 b. $3,299,233 c. $2,500,000 d. $2,399,233
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a. A new operating system for an existing machine is expected to cost $837,000 and have a useful life of six years. The system yields an incremental after-tax income of $245,000 each year after deducting its straight-line depreciation. The predicted salvage value of the system is $105,000. b. A machine costs $570,000, has a $58,000 salvage value, is expected to last eight years, and will generate an after-tax income of $155,000 per year after straight-line depreciation. Assume the company requires a 10% rate of return on its investments. Compute the net present value of each potential investment. (PV of $1, FV of $1, PVA of $1, and FVA of $1) (Use appropriate factor(s) from the tables provided.) Complete this question by entering your answers in the tabs below. Required A Required B A new operating system for an existing machine is expected to cost $837,000 and have a useful life of six years. The system yields an incremental after-tax income of $245,000 each year after deducting its…
A company is intending to invest in a capital budgeting project to manufacture a medical testing device and has projected the following sales: Year 1 Year 2 Year 3 Year 4 Year 5 50,000 66,400 81,200 68,500 54,500 The installed cost of the new assets will be $18,500,000 which will be depreciated using the 7-year MACRS schedule. The assets will have a salvage value of $3,700,000. Initial NWC requirements are $1,500,000 and additional working capital needs are estimated to be 15% of the projected sales increases for the following year. Total fixed costs are $2,000,000 per year. The medical device has a selling price of $300 per unit and variable production costs are $175. The firm has a marginal tax rate of 35% and a required rate of return of 18%. Analyze this project and give your recommendation as to whether they should invest in it or…
Pina Colada Manufacturing Company is considering three new projects, each requiring an equipment investment of $25,600. Each project will last for 3 years and produce the following cash flows. Year 1 2 3 AA BB $8,200 $11,100 $12,200 11,200 10,200 16,200 Total $34,600 (a) 11,100 11,100 Payback period $33,300 CC 10,200 The salvage value for each of the projects is zero. Pina Colada uses straight-line depreciation. Pina Colada will not accept any project with a payback period over 2.2 years, Pina Colada's minimum required rate of return is 12%. Click here to view PV tables. $33,600 Compute each project's payback period: (Round answers to 2 decimal places, e.g. 52.75.) AA years BB years CC years
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Perit Industries has $115,000 to invest. The company is trying to decide between two alternative uses of the funds. The alternatives are: Project A Project B Cost of equipment required $ 115,000 $ 0 Working capital investment required $ 0 $ 115,000 Annual cash inflows $ 21,000 $ 69,000 Salvage value of equipment in six years $ 8,700 $ 0 Life of the project 6 years 6 years The working capital needed for project B will be released at the end of six years for investment elsewhere. Perit Industries’ discount rate is 15%. Click here to view Exhibit 14B-1 and Exhibit 14B-2, to determine the appropriate discount factor(s) using tables. Required: 1. Compute the net present value of Project A. (Enter negative values with a minus sign. Round your final answer to the nearest whole dollar amount.) 2. Compute the net present value of Project B. (Enter negative values with a minus sign. Round your final answer to the nearest whole dollar amount.) 3. Which investment…
Perit Industries has $210,000 to invest. The company is trying to decide between two alternative uses of the funds. The alternatives are: Project A Project B Cost of equipment required $ 210,000 $0 Working capital investment required $0 $ 210,000 Annual cash inflows $ 30,000 $ 52,000 Salvage value of equipment in six years $ 9, 100 $ 0 Life of the project 6 years 6 years The working capital needed for project B will be released at the end of six years for investment elsewhere. Perit Industries' discount rate is 15%. Click here to view Exhibit 14B-1 and Exhibit 14B-2, to determine the appropriate discount factor(s) using tables. Required: 1. Compute the net present value of Project A. (Enter negative values with a minus sign. Round your final answer to the nearest whole dollar amount.) 2. Compute the net present value of Project B. (Enter negative values with a minus sign. Round your final answer to the nearest whole dollar amount.) 3. Which investment alternative (if either) would you…
A project requires an initial investment in equipment and machinery of $10 million. The equipment is expected to have a 5-year lifetime with no salvage value and will be depreciated on a straight-line basis. The project is expected to generate revenues of $5.1 million each year for the 5 years and have operating expenses (not including depreciation) amounting to 1/3 of revenues. The tax rate is 40%. What is the net cash flow in year 1? Group of answer choices 3.40M 2.84M 0.84M 2.04M
National Integrated Systems (NIS), a global provider of heating and air conditioning is planning a project whose data is provided below. The project’s equipment has a 3 year tax life after which its salvage value will be zero. The machinery will be depreciated on a straight line basis over three years. Revenues and other operating costs are expected to be constant over the project’s life. What is the project’s cash flow in Year 1? Equipment Cost = $130,000Depreciation rate = 33.33%Annual Sales Revenue= $120,000Operating Costs (ex Depreciation) = $50,000 Tax Rate = 35%
3. Becktell Industries has an offer to build a special product for the state highway patrol. The contract will cover a period of 10 years. The projected cash flows associated with the contract are given below: Required: Complete an analysis to calculate the net present value of the above cash flows. Company Required Rate of Return 11% Cost of new equipment 325,000 Working Capital needed 150,000 Net annual cash receipts 80,000 Salvage Value at end 75,000

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