1–19 Operating cash flows Hoffmann-La Roche is considering replacing one permeability test equipment with a new model. The old equipment is fully depreciated and would last 3 more years. The new equipment is expected to have a 5-year life and depreciation charges of CHf 20,000 in year 1; CHf 32,000 in year 2; CHf 19,000 in year 3; and CHf 12,000 in both year 4 and year 5. The firm estimates the revenues and expenses (excluding depreciation and interest) for the new and old machineries to be as shown in the table below. The firm is subject to a 24% tax rate, including the cantonal tax rates. New equipment Old equipment Expenses (excluding depreciation and interest) Expenses (excluding depreciation and interest) Year Revenue Revenue 1 CHf 400,000 CHf 300,000 CHf 350,000 CHf 250,000 410,000 300,000 350,000 250,000 3 420,000 300,000 350,000 250,000 4 430,000 300,000 350,000 250,000 440,000 300,000 350,000 250,000 a. Calculate the operating cash flows associated with each equipment. b. Calculate the operating cash flows resulting from the proposed equipment replacement. c. Depict on a timeline the operating cash flows calculated in part b.

1–19 Operating cash flows Hoffmann-La Roche is considering replacing one permeability test equipment with a new model. The old equipment is fully depreciated and would last 3 more years. The new equipment is expected to have a 5-year life and depreciation charges of CHf 20,000 in year 1; CHf 32,000 in year 2; CHf 19,000 in year 3; and CHf 12,000 in both year 4 and year 5. The firm estimates the revenues and expenses (excluding depreciation and interest) for the new and old machineries to be as shown in the table below. The firm is subject to a 24% tax rate, including the cantonal tax rates. New equipment Old equipment Expenses (excluding depreciation and interest) Expenses (excluding depreciation and interest) Year Revenue Revenue 1 CHf 400,000 CHf 300,000 CHf 350,000 CHf 250,000 410,000 300,000 350,000 250,000 3 420,000 300,000 350,000 250,000 4 430,000 300,000 350,000 250,000 440,000 300,000 350,000 250,000 a. Calculate the operating cash flows associated with each equipment. b. Calculate the operating cash flows resulting from the proposed equipment replacement. c. Depict on a timeline the operating cash flows calculated in part b.

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

See similar textbooks

Similar questions

4 Book Consider two mutually exclusive new product launch projects that Nagano Golf is considering. Assume that the discount rate for Nagano Golf is 16 percent Project A Nagano NP-30. Professional clubs that will take an initial investment of $971,000 at time 0. Next five years (years 1-5) of sales will generate a consistent cash flow of $440,000 per year. Introduction of new product at year 6 will terminate further cash flows from this project Project B Nagano NX-20 High-end amateur clubs that will take an initial investment of $700,000 at time 0. Cash flow at year 1 is $290,000. In each subsequent year, cash flow will grow at 10 percent per year. Introduction of new product at year 6 will terminate further cash flows from this project. Year e 1 2 3 4 NP-30 -$971,000 440,000 440,000 440,000 440,000 440,000 NX-20 -$700,000 290,000 319,000 350,900 Net present value Internal rate of return 385,990 424,589 Complete the following table: (Do not round intermediate calculations. Round the…
Lesi PayUBLK Perou, el Presem velue Method, and Analysis Elite Apparel Inc. is considering two Investment projects. The estimated net cash flows from each project are as follows: Year Plant Expansion Retall Store Expansion 1 2 3 4 5 Total Year Each project requires an Investment of $241,000. A rate of 15% has been Present Value of $1 at Compound Interest 6% 10% 0.943 0.890 0.840 0.792 0.747 0.705 0.665 0.627 0.592 0.558 1 2 3 4 5 6 7 8 9 10 Required: $133,000 108,000 94,000 85,000 26,000 $446,000 0.909 Net present value 0.826 0.751 15% 0.893 0.870 0.833 0.797 0.756 0.694 0.712 0.579 0.683 0.636 0.572 0.482 0.621 0.557 0.497 0.402 0.564 0.507 0.432 0.335 0.513 0.452 0.376 0.279 0.467 0.327 0.233 0.424 0.284 0.194 0.385 0.247 12% 0.404 0.361 0.322 2 years Present value of net cash flow total Less amount to be invested $111,000 130,000 89,000 62,000 54,000 $446,000 1a. Compute the cash payback period for each project. Cash Payback Period 2 years ✓ ✓ S api 0.658 S 20% Plant Expansion…
QUESTION 9 Home Express Moving Company is considering purchasing new equipment that costs $728,000. Its management estimates that the equipment will generate cash inflows of $50,000 semiannually for its 2 year life. Present value of $1: 6% 1 2 3 4 5 0.943 0.890 0.840 0.792 0.747 O $235,750 O $100,000 O $200,000 Ⓒ$152,600 7% 8% 0.917 0.926 0.857 0.842 0.772 0.708 0.650 9% 0.935 0.873 0.816 0.794 0.763 0.735 0.713 0.681 10% 0.909 0.826 0.751 0.683 0.621 The company's annual required rate of return is 14%. Using the factors in the table, calculate the present value of the cash flows
QUESTION 31 Twin Arrows Corp. is considering two mutually exclusive projects. Both require an initial investment of $10,000 at t = 0. Project X has an expected life of 2 years with after-tax cash inflows of $6,000 and $7,800 at the end of Years 1 and 2, respectively. In addition, Project X can be repeated at the end of Year 2 with no changes in its cash flows. Project Y has an expected life of 4 years with after-tax cash inflows of $4,300 at the end of each of the next 4 years. Each project has a WACC of 8%. Using the replacement chain approach, what is the NPV of the most profitable project? O a. $4,242 O b. $4,246 O c. $4,286 O d. $4,325 O e. $4,433
5:10 K (Net present value calculation) Carson Trucking is considering whether to expand its regional service center in Mohab, UT. The expansion requires the expenditure of $10,500,000 on new service equipment and would generate annual net cash inflows from reduced costs of operations equal to $2,000,000 per year for each of the next 9 years. In year 9 the firm will also get back a cash flow equal to the salvage value of the equipment, which is valued at $1.2 million. Thus, in year 9 the investment cash inflow totals $3,200,000. Calculate the project's NPV using a discount rate of 8 percent. If the discount rate is 8 percent, then the project's NPV is $ ||| C... = LTE 2.1 4G O 55% (Round to the nearest dollar.)
Problem 6-4 Calculating Project Cash Flow from Assets Esfandairi Enterprises is considering a new 3-year expansion project that requires an initial fixed asset investment of $2.29 million. The fixed asset will be depreciated straight-line to zero over its 3-year tax life. The project is estimated to generate $1,790,000 in annual sales, with costs of $700,000. The project requires an initial investment in net working capital of $410,000, and the fixed asset will have a market value of $420,000 at the end of the project. a. If the tax rate is 21 percent, what is the project's Year O net cash flow? Year 1? Year 2? Year 3? (Do not round intermediate calculations and enter your answers in dollars, not millions of dollars, e.g., 1,234,567. A negative answer should be indicated by a minus sign.) b. If the required return is 12 percent, what is the project's NPV? (Do not round intermediate calculations and enter your answer in dollars, not millions of dollars, rounded to 2 decimal places,…
QUESTION 10 A project will produce operating cash flows of $57,000 a year for 3 years. During the life of the project, inventory will be lowered by $10,000 and accounts receivable will increase by $20,000. Accounts payable will decrease by $5,000. The project requires the purchase of equipment at an initial cost of $90,000. The equipment will be salvaged at the end of the project creating a $17,000 after-tax cash inflow. At the end of the project, net working capital will return to its normal level. What is the net present value of this project given a required return of 12%? $48,772.08 $54,681.35 $56,209.19 $42,908.17 $44,141.41
Terminal cash flow: Replacement decision Russell Industries is considering replacing a fully depreciated machine that has a remaining useful life of 10 years with a newer, more sophisticated machine. The new machine will cost $207,000 and will require $29,200 in installation costs. It will be depreciated under MACRS using a 5-year recovery period (see the table for the applicable depreciation percentages). A $26,000 increase in net working capital will be required to support the new machine. The firm's managers plan to evaluate the potential replacement over a 4-year period. They estimate that the old machine could be sold at the end of 4 years to net $14,000 before taxes; the new machine at the end of 4 years will be worth $73,000 before taxes. Calculate the terminal cash flow at the end of year 4 that is relevant to the proposed purchase of the new machine. The firm is subject to a 21% tax rate. The terminal cash flow for the replacement decision is shown below: (Round to the nearest…
QUESTION 30 Twin Buttes Mine Co. is considering two mutually exclusive projects. Both require an initial investment of $10,000 at t = 0. Project X has an expected life of 2 years with after-tax cash inflows of $6,000 and $8,500 at the end of Years 1 and 2, respectively. In addition, Project X can be repeated at the end of Year 2 with no changes in its cash flows. Project Y has an expected life of 4 years with after-tax cash inflows of $4,600 at the end of each of the next 4 years. Each project has a WACC of 11%. What is the equivalent annual annuity of the most profitable project? a. $1,345.50 O b. $1,346.30 O c. $1,361.52 O d. $1,376.74 O e. $1,411.15
ic Yo NS io cer ist bun ngs nnée Current Attempt in Progress Blossom Manufacturing Co. is evaluating two projects. The company uses payback criteria of three years or less. Project A has a cost of $905,000, and project B's cost is $1,247,300. Cash flows from both projects are given in the following table. Year 1 2 3 4 Project A $86,212 313,562 427,594 285,552 Project B $586,212 413,277 231,199 What are their discounted payback periods? (Round answers to 2 decimal places, e.g. 15.25. If discounted payback period exceeds life of the project, enter 0.00 for the answer.) Discounted payback period of project A Discounted payback period of project B will he accepted with a discount rate of 8 percent? átv zoom
Payback, Accounting Rate of Return, Net Present Value, Internal Rate of Return Blaylock Company wants to buy a numerically controlled (NC) machine to be used in producing specially machined parts for manufacturers of trenching machines. The outlay required is $700,000. The NC equipment will last five years with no expected salvage value. The expected after-tax cash flows associated with the project follow: Year Cash Revenues Cash Expenses 1 $1,300,000 $1,100,000 2 1,300,000 1,100,000 3 1,300,000 1,100,000 4 1,300,000 1,100,000 5 1,300,000 1,100,000 Required: Compute the investment's Net Present Value, assuming a required rate of return of 10 percent. Round present value calculations and your final answer to the nearest dollar.NPV = $fill in the blank 1
Cash Payback Period, Net Present Value Analysis, and Qualitative Considerations The plant manager of Shenzhen Electronics Company is considering the purchase of new automated assembly equipment. The new equipment will cost $90,000. The manager believes that the new investment will result in direct labor savings of $30,000 per year for 10 years. Present Value of an Annuity of $1 at Compound Interest Year 6% 10% 12% 15% 20% 1 0.943 0.909 0.893 0.870 0.833 2 1.833 1.736 1.690 1.626 1.528 3 2.673 2.487 2.402 2.283 2.106 4 3.465 3.170 3.037 2.855 2.589 5 4.212 3.791 3.605 3.353 2.991 6 4.917 4.355 4.111 3.785 3.326 7 5.582 4.868 4.564 4.160 3.605 8 6.210 5.335 4.968 4.487 3.837 9 6.802 5.759 5.328 4.772 4.031 10 7.360 6.145 5.650 5.019 4.192 a. What is the payback period on this project?fill in the blank 1 years b. What is the net present value, assuming a 12% rate of return? Use the table provided above. Round to the nearest whole dollar. Net present value…

SEE MORE QUESTIONS

Recommended textbooks for you

Essentials Of Investments

Finance

ISBN:

9781260013924

Author:

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

Publisher:

Mcgraw-hill Education,

FUNDAMENTALS OF CORPORATE FINANCE

Finance

ISBN:

9781260013962

Author:

BREALEY

Publisher:

RENT MCG

Financial Management: Theory & Practice

Finance

ISBN:

9781337909730

Author:

Brigham

Publisher:

Cengage

Foundations Of Finance

Finance

ISBN:

9780134897264

Author:

KEOWN, Arthur J., Martin, John D., PETTY, J. William

Publisher:

Pearson,

Fundamentals of Financial Management (MindTap Cou…

Finance

ISBN:

9781337395250

Author:

Eugene F. Brigham, Joel F. Houston

Publisher:

Cengage Learning

Corporate Finance (The Mcgraw-hill/Irwin Series i…

Finance

ISBN:

9780077861759

Author:

Stephen A. Ross Franco Modigliani Professor of Financial Economics Professor, Randolph W Westerfield Robert R. Dockson Deans Chair in Bus. Admin., Jeffrey Jaffe, Bradford D Jordan Professor

Publisher:

McGraw-Hill Education

Essentials Of Investments

Finance

ISBN:

9781260013924

Author:

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

Publisher:

Mcgraw-hill Education,

FUNDAMENTALS OF CORPORATE FINANCE

Finance

ISBN:

9781260013962

Author:

BREALEY

Publisher:

RENT MCG

Financial Management: Theory & Practice

Finance

ISBN:

9781337909730

Author:

Brigham

Publisher:

Cengage

Foundations Of Finance

Finance

ISBN:

9780134897264

Author:

KEOWN, Arthur J., Martin, John D., PETTY, J. William

Publisher:

Pearson,

Fundamentals of Financial Management (MindTap Cou…

Finance

ISBN:

9781337395250

Author:

Eugene F. Brigham, Joel F. Houston

Publisher:

Cengage Learning

Corporate Finance (The Mcgraw-hill/Irwin Series i…

Finance

ISBN:

9780077861759

Author:

Stephen A. Ross Franco Modigliani Professor of Financial Economics Professor, Randolph W Westerfield Robert R. Dockson Deans Chair in Bus. Admin., Jeffrey Jaffe, Bradford D Jordan Professor

Publisher:

McGraw-Hill Education

SEE MORE TEXTBOOKS