1. Capital Budgeting Argo Airlines is looking to buy some gates at a West Coast airport. The key financial variables are below. Note that the gates revert back to the airport at the end of year 10. Note that any losses trigger tax benefits. Purchase Price Yearly Revenue Operating Costs Discount Rate Gate Renovation (Fit-out Costs) Revenue Inflator Tax Rate $31M $15M 51% of revenue 6% $3M (in year 5) 2.0% 21% What are the NPV and IRR of the gates? Should Argo invest in them? Why or why not?

1. Capital Budgeting Argo Airlines is looking to buy some gates at a West Coast airport. The key financial variables are below. Note that the gates revert back to the airport at the end of year 10. Note that any losses trigger tax benefits. Purchase Price Yearly Revenue Operating Costs Discount Rate Gate Renovation (Fit-out Costs) Revenue Inflator Tax Rate $31M $15M 51% of revenue 6% $3M (in year 5) 2.0% 21% What are the NPV and IRR of the gates? Should Argo invest in them? Why or why not?

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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Quantitative Problem: Bellinger Industries is considering two projects for inclusion in its capital budget, and you have been asked to do the analysis. Both projects' after-tax cash flows are shown on the time line below. Depreciation, salvage values, net operating working capital requirements, and tax effects are all included in these cash flows. Both projects have 4-year lives, and they have risk characteristics similar to the firm's average project. Bellinger's WACC is 9%. 0 1 2 3 4 Project A -1,400 650 390 210 260 Project B -1,400 250 325 360 710 What is Project A's MIRR? Do not round intermediate calculations. Round your answer to two decimal places. % What is Project B's MIRR? Do not round intermediate calculations. Round your answer to two decimal places. %
fINANCE Bellinger Industries is considering two projects for inclusion in its capital budget, and you have been asked to do the analysis. Both projects' after-tax cash flows are shown on the time line below. Depreciation, salvage values, net operating working capital requirements, and tax effects are all included in these cash flows. Both projects have 4-year lives, and they have risk characteristics similar to the firm's average project. Bellinger's WACC is 11%. 0 1 2 3 4 Project A -1,250 650 450 230 280 Project B -1,250 250 385 380 730 What is Project A's MIRR? Do not round intermediate calculations. Round your answer to two decimal places. % Hide Feedback Partially Correct Check My Work Feedback Review the MIRR equation. The solution for MIRR is a percentage rate not a dollar value. Review the NPV equation definition. Don't discount the Year 0 cash flow since its PV is simply -1,250. The MIRR calculation is dependent on the firm's WACC. What is Project B's MIRR? Do not round…
Quantitative Problem: Bellinger Industries is considering two projects for inclusion in its capital budget, and you have been asked to do the analysis. Both projects' after-tax cash flows are shown on the time line below. Depreciation, salvage values, net operating working capital requirements, and tax effects are all included in these cash flows. Both projects have 4-year lives, and they have risk characteristics similar to the firm's average project. Bellinger's WACC is 11%. 2 .!!!!! 590 360 230 300 Project A -1,100 Project B -1,100 3 220 360 280 700 What is Project Delta's IRR? Do not round intermediate calculations. Round your answer to two decimal places.
Cash flows estimation and capital budgeting:You are the head of finance department in XYZ Company. You are considering adding a new machine to your production facility. The new machine’s base price is $10,800.00, and it would cost another $2,760.00 to install it. The machine falls into the MACRS 3-year class (the applicable MACRS depreciation rates are 33.33%, 44.45%, 14.81%, and 7.41%), and it would be sold after three years for $2,350.00. The machine would require an increase in net working capital (inventory) of $800.00. The new machine would not change revenues, but it is expected to save the firm $23,845.00 per year in before-tax operating costs, mainly labor. XYZ's marginal tax rate is 35.00%. a. What is the initial cash outlay? b. What is the free cash flow for year 1? c. What is the additional Year-3 cash flow (i.e, the after-tax salvage and the return of working capital – also called terminal value)? (please show your work in details and highlight your answers)
Quantitative Problem: Bellinger Industries is considering two projects for inclusion in its capital budget, and you have been asked to do the analysis. Both projects' after-tax cash flows are shown on the time line below. Depreciation, salvage values, net operating working capital requirements, and tax effects are all included in these cash flows. Both projects have 4-year lives, and they have risk characteristics similar to the firm's average project. Bellinger's WACC is 11%. 0 1 2 3 4 Project A -1,050 600 360 300 290 Project B -1,050 200 295 450 740 What is Project A’s IRR? Do not round intermediate calculations. Round your answer to two decimal places. _________ % What is Project B's IRR? Do not round intermediate calculations. Round your answer to two decimal places. _________% If the projects were independent, which project(s) would be accepted according to the IRR method? If the projects were mutually exclusive, which…
Please show work
Basic Capital Budgeting Techniques; No Taxes, Uniform Net Cash Inflows; SpreadsheetsBob Jensen Inc. purchased a $650,000 machine to manufacture specialty taps for electrical equipment.Jensen expects to sell all it can manufacture in the next 10 years. To encourage capital investments,the government has exempted taxes on profits from new investments. This legislation is tobe in effect for the foreseeable future. The machine is expected to have a 10-year useful life with nosalvage value. Jensen uses straight-line depreciation. The net cash inflow is expected to be $150,000each year for 10 years. Jensen uses a 12% discount rate in evaluating capital investments. Assume,for simplicity, that MACRS depreciation rules do not apply. how to find ARR?
Cash flows estimation and capital budgeting:You are the head of finance department in XYZ Company. You are considering adding a new machine to your production facility. The new machine’s base price is $10,000.00, and it would cost another $2,400.00 to install it. The machine falls into the MACRS 3-year class (the applicable MACRS depreciation rates are 33.33%, 44.45%, 14.81%, and 7.41%), and it would be sold after three years for $2,150.00. The machine would require an increase in net working capital (inventory) of $870.00. The new machine would not change revenues, but it is expected to save the firm $31,775.00 per year in before-tax operating costs, mainly labor. XYZ's marginal tax rate is 35.00%.If the project's cost of capital is 12.50%, what is the NPV of the project?Round your answer to two decimal places. For example, if your answer is $345.667 round as 345.67 and if your answer is .05718 or 5.718% round as 5.72. Group of answer choices $40,993.57 $10,000.00 $38,124.02…
Quantitative Problem: Bellinger Industries is considering two projects for inclusion in its capital budget, and you have been asked to do the analysis. Both projects' after-tax cash flows are shown on the time line below. Depreciation, salvage values, net operating working capital requirements, and tax effects are all included in these cash flows. Both projects have 4-year lives, and they have risk characteristics similar to the firm's average project. Bellinger's WACC is 9%. 0 1 2 3 4 Project A -900 600 365 280 330 Project B -900 200 300 430 780 What is Project A's payback? Do not round intermediate calculations. Round your answer to four decimal places. years What is Project A's discounted payback? Do not round intermediate calculations. Round your answer to four decimal places. years What is Project B's payback? Do not round intermediate calculations. Round your answer to four decimal places. years What is Project B's…
Please help me solve (especially payback / discount payback)
Quantitative Problem: Bellinger Industries is considering two projects for inclusion in its capital budget, and you have been asked to do the analysis. Both projects' after-tax cash flows are shown on the time line below. Depreciation, salvage values, net operating working capital requirements, and tax effects are all included in these cash flows. Both projects have 4-year lives, and they have risk characteristics similar to the firm's average project. Bellinger's WACC is 7%. 1 1 -1,250 600 -1,250 200 What is Project A's MIRR? Do not round intermediate calculations. Round your answer to two decimal places. 8 % Project A Project B 0 2 1 395 330 3 + 220 370 4 1 270 720 Show All Feedback What is Project B's MIRR? Do not round intermediate calculations. Round your answer to two decimal places. 9 %
Finnegan Company plans to Invest In a new operating plant that Is expected to cost $500,000. The projected Incremental Income from the Investment Is as follows: Net Income Year After Tax 1 $30,000 $45,000 $50,000 $55,000 $40,000 $20,000 The unadjusted rate of return on the Inltial Investment would be approximately. Multiple Choice 80% 6.0%. 16.7% 48.0%

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