1. Relevant Cash Flows [L01] Parker & Stone, Inc., is looking at setting up a new manufacturing plant in South Park to produce garden tools. The company bought some land six years ago for $3.6 million in anticipation of using it as a warehouse and distribution site, but the company has since decided to rent these facilities from a competitor instead. If the land were sold today, the company would net $4.1 million. The company wants to build its new manufacturing plant on this land; the plant will cost $18.1 million to build, and the site requires $950,000 worth of grading before it is suitable for construction. What is the proper cash flow amount to use as the initial investment in fixed assets when evaluating this project? Why?

1. Relevant Cash Flows [L01] Parker & Stone, Inc., is looking at setting up a new manufacturing plant in South Park to produce garden tools. The company bought some land six years ago for $3.6 million in anticipation of using it as a warehouse and distribution site, but the company has since decided to rent these facilities from a competitor instead. If the land were sold today, the company would net $4.1 million. The company wants to build its new manufacturing plant on this land; the plant will cost $18.1 million to build, and the site requires $950,000 worth of grading before it is suitable for construction. What is the proper cash flow amount to use as the initial investment in fixed assets when evaluating this project? Why?

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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#3 Caspian Sea Drinks is considering the production of a diet drink. The expansion of the plant and the purchase of the equipment necessary to produce the diet drink will cost $22.00 million. The plant and equipment will be depreciated over 10 years to a book value of $3.00 million, and sold for that amount in year 10. Net working capital will increase by $1.08 million at the beginning of the project and will be recovered at the end. The new diet drink will produce revenues of $8.64 million per year and cost $1.58 million per year over the 10-year life of the project. Marketing estimates 17.00% of the buyers of the diet drink will be people who will switch from the regular drink. The marginal tax rate is 21.00%. The WACC is 10.00%. Find the NPV (net present value). Answer format: Currency: Round to: 2 decimal places.
Q. 1 Fatih's plant is trying to decide to buy another CNC machine or not. The machine will cost $20,000 when purchased. Maintenance will cost $1000 per year. The device will generate revenues of $5000 per year for 5 years. The salvage value is $7000. Draw and simplify the cash flow diagram.
1. Howell Petroleum is considering a new project that complements its existing business. The machine required for the project costs $3.82 million. The marketing department predicts that sales related to the project will be $2.52 million per year for the next four years, after which the firm expects to sell it for $500,000. The machine is a five-year class asset and will be depreciated down to zero over five years under the straight-line method. Cost of goods sold and operating expenses related to the project are predicted to be 25 percent of sales. Howell also needs to add net working capital of $200,000 immediately. The additional net working capital will be recovered in full at the end of the project’s life. The corporate tax rate is 35 percent. The required rate of return (or discount rate) for the project is 12.5 percent. Compute the NPV, IRR, and payback period of the project. The firm’s acceptable payback period is 3 years. Is this project acceptable to the firm?
#4 Caspian Sea Drinks is considering the production of a diet drink. The expansion of the plant and the purchase of the equipment necessary to produce the diet drink will cost $27.00 million. The plant and equipment will be depreciated over 10 years to a book value of $2.00 million, and sold for that amount in year 10. Net working capital will increase by $1.48 million at the beginning of the project and will be recovered at the end. The new diet drink will produce revenues of $9.35 million per year and cost $1.56 million per year over the 10-year life of the project. Marketing estimates 17.00% of the buyers of the diet drink will be people who will switch from the regular drink. The marginal tax rate is 24.00%. The WACC is 10.00%. Find the IRR (internal rate of return). Answer format: Percentage Round to: 4 decimal places (Example: 9.2434%, % sign required. Will accept decimal format rounded to 6 decimal places (ex: 0.092434))
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Part 1. Integrity Materials is considering expanding on some land that it currently owns. The initial cost of the land was $ 364,500 and it is currently valued at $357,900. The company has some unused equipment that it currently owns valued at $29,000 that could be used for this project if $8, 200 is spent for equipment modifications. Other equipment costing $ 164,500 will also be required. What is the amount of the initial cash flow for this expansion project? Part 2. Assume a firm utilizes the security market line approach to determine the cost of equity. If the firm currently pays an annual dividend of $2.40 per share and has a beta of 1.42, all else constant, which of the following actions will increase the firm's cost of equity? A. A decrease in the firm's beta B, an icrease in the market rate of return, but no change in the market premium C, a drease in the dividend amount D. An increase in the risk free rate E. an increase in the divident amount
F1 please help.....
Give typing answer with explanation and conclusion Relevant cash flows) Kenny, Inc is looking at setting up a new manufacturing plant in South Park. The company bought some land six years ago for $3 million in anticipation of using it as a warehouse and distribution site, but the company has since decided to rent facilities elsewhere. The land would net $4 million if it were sold today. The company now wants to build its new manufacturing plant on this land; the plant will cost $3 million to build, and the site requires $400,000 worth of grading before it is suitable for construction. When evaluating this project, the proper cash flow amount to use as the initial investment in fixed assets is $_________ million.
A L0IN33 builder company is deciding to undertake a pr0ject. The pr0ject is quite profitable as it will generate net cash inflows of $20 million per year for 5 years. However, it will cause pollution to the nearby residents. The company can mitigate this pollution by investing additional 10 million at Year 0 but legally it is n0t compulsory for it to do so. Undertaking this project would cost $60 million without mitigation. If the firm does invest in mitigati0n, the annual cash inflows would be $22 million. The risk adjusted WACC is 12%. Calculate the NPV and IRR with and without mitigation(IRR must) Should the project be undertaken? If so, should the firm do mitigation
#3 Caspian Sea Drinks is considering the production of a diet drink. The expansion of the plant and the purchase of the equipment necessary to produce the diet drink will cost $22.00 million. The plant and equipment will be depreciated over 10 years to a book value of $1.00 million, and sold for that amount in year 10. Net working capital will increase by $1.37 million at the beginning of the project and will be recovered at the end. The new diet drink will produce revenues of $9.24 million per year and cost $2.26 million per year over the 10-year life of the project. Marketing estimates 20.00% of the buyers of the diet drink will be people who will switch from the regular drink. The marginal tax rate is 33.00%. The WACC is 15.00%. Find the NPV (net present value). Submit Answer format: Currency: Round to: 2 decimal places.
Subject: accounting

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