1. A plant operation is scheduled to be developed for a time zero capital cost of $400 million with year 1through 10 revenues of $200 million per year less operating cost of $100 million per year with zero salvage value. Assume a washout of escalation of operating cost and revenue each year. "Washout" means any operating cost escalation is offset by the same dollar escalation of revenue so profit remains uniform at the today's dollar value profit. Evaluate the project ROR and analyze the sensitivity of the result to changing project life to 5 years or 15 years Evaluate the sensitivity of the project ROR to changing the time zero capital cost to $300 million and $500 million for the 10-year project life. Evaluate the sensitivity of the project ROR to changing the revenue to $250 million and $150 million for the 10-year project life. Plot the results in a Tornado chart.

1. A plant operation is scheduled to be developed for a time zero capital cost of $400 million with year 1through 10 revenues of $200 million per year less operating cost of $100 million per year with zero salvage value. Assume a washout of escalation of operating cost and revenue each year. "Washout" means any operating cost escalation is offset by the same dollar escalation of revenue so profit remains uniform at the today's dollar value profit. Evaluate the project ROR and analyze the sensitivity of the result to changing project life to 5 years or 15 years Evaluate the sensitivity of the project ROR to changing the time zero capital cost to $300 million and $500 million for the 10-year project life. Evaluate the sensitivity of the project ROR to changing the revenue to $250 million and $150 million for the 10-year project life. Plot the results in a Tornado chart.

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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2. Hobart Industries is trying to estimate its first-year operating cash flow (att-1) for a proposed project. The financial staff has collected the following information: Projected sales Operating costs Depreciation $3,000,000 1,200,000 450,000 330,000 Interest expense The company faces a 40% tax rate. What is the project's operating cash flow for the first year (t-13? a $1.260,000 b. $ 810,000 € $1,080,000 d. $1,500,000 $1,800,000
16. A 6-year project is expected to generate annual sales of 8,900 units at a price of $76 per unit and a variable cost of $47 per unit. The equipment necessary for the project will cost $317,000 and will be depreciated on a straight-line basis over the life of the project. Fixed costs are $190,000 per year and the tax rate is 25 percent. How sensitive is the operating cash flow to a $1 change in the per unit sales price? $4,609 $6,007 $4,142 $5,075 $6,675
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Given the following information, what is the financial break-even point? Initial investment = $250,000; variable cost = $95; fixed cost = $58,000; price = $130; life = 6 years; required return = 12%; SL depreciation; before-tax salvage value of assets = $28,000; initial net working capital investment = $35,000, and tax rate is 21%. Do It correctly I'll rate
4. A project capitalized for ₱150,000 invested in depreciable assets will earn a uniform, annual income of ₱59, 547 in 10 years. The costs for operation and maintenance total ₱27,000a year, and taxes and insurance will cost 4% of the first cost each year. If the company expects its capital to earn12% before income taxes, is the investment worthwhile? Show by: Annual cost method Solve and show the solution.
A project is expected to generate annual revenues of $ 119, 300, with variable costs of $75, 400, and fixed costs of $15,900. The annual depreciation is $3,950 and the tax rate is 34 percent. What is the annual operating cash flow? Multiple Choice $61, 143 $19, 823 $45, 243 $ 28,000 $31,950
(Ignore income taxes in this problem.) Your Company is considering a project with a 6-year life. Your required rate of return is 14%. What is the net present value of the project? Project Cost of equipment needed now $50,000 Working capital investment needed now 65,000 Annual cash operating inflows 25,000 Salvage value of equipment in 6 years $11,865 O ($7,755. O $47,225 $13,350.
27.
5.1.3 Calculate the Net Present Value of each project (with amounts rounded off to the nearest Rand). INFORMATION Zeda Enterprises has the option to invest in machinery in projects A and B but finance is only available to invest in one of them. You are given the following projected data: Initial cost Scrap value Depreciation per year Net profit Year 1 Year 2 Year 3 Year 4 Year 5 Net cash flows Year 1 Year 2 Year 3 Year 4 Year 5 Project A R300 000 R40 000 R52 000 R20 000 R30 000 R50 000 R60 000 R10 000 Project B R300 000 0 R60 000 R90 000 R90 000 R90 000 R90 000 R90 000
A project is expected to generate annual revenues of $124,100, with variable costs of $77,200, and fixed costs of $17,700. The annual depreciation is $4,250 and the tax rate is 23 percent. What is the annual operating cash flow? Multiple Choice $47,878 $23,462 $33,450 $29,200 $65,578
2. Incremental costs - Initial and terminal cash flow Consider the case of Marston Manufacturing Company: Marston Manufacturing Company is considering a project that requires an investment in new equipment of $3,780,000. Under the new tax law, the equipment is eligible for 100% bonus depreciation at t = 0 so the equipment will be fully depreciated at the time of purchase. Marston estimates that its accounts receivable and inventories need to increase by $720,000 to support the new project, some of which is financed by a $288,000 increase in spontaneous liabilities (accounts payable and accruals). The company's tax rate is 25%. The after-tax cost of Marston’s new equipment is . Marston’s initial net investment outlay is . Suppose Marston’s new equipment is expected to sell for $600,000 at the end of its four-year useful life, and at the same time, the firm expects to recover all of its net operating working capital (NOWC) investment. Remember, that under the…

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