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

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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
None
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
Question 5 Bunnings Ltd is considering to invest in one of the two following projects to buy a new equipment. Each equipment will last 5 years and have no salvage value at the end. The company’s required rate of return for all investment projects is 8%. The cash flows of the projects are provided below. Equipment 1 Equipment 2 Cost $186,000 $195,000 Future Cash Flows Year 1 Year 2 Year 3 Year 4 Year 5 86 000 93 000 83 000 75 000 55 000 97 000 84 000 86 000 75 000 63 000 Required: Identify which option of equipment should the company accept based on Profitability Index? Identify which option of equipment should the company accept based on discounted pay back method if the payback criterion is maximum 2 years?
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
None
Question 2 Consider a 100,000 sqf office building with the following cash flows: The gross rent in year 1 is $30/sqf/year and the rents are expected to grow at 2% per year. The operating expenses in the first year are $5/sqf/year and are expected to increase at 3% per year. There are no capital expenditures. All cash flows are in arrears. The discount rate for the property is 9%. a. What is the value of the building if the building will be held and rented indefinitely? What is the cap rate at time 0? b. What is the value of the building if the building is sold at the end of 10 years at a 8% cap rate? What is the cap rate at time 0?
Current Attempt in Progress Pharoah Company is considering purchasing new equipment for $451,400. It is expected that the equipment will produce net annual cash flows of $61,000 over its 10-year useful life. Annual depreciation will be $45,140. Compute the cash payback period. (Round answer to 1 decimal place, e.g. 10.5.) Cash payback period years
Question 1 Investment of RM820,000 in new machine to expand production capacity is being consideration by a company. Following are the budgeted cash flows given for next 6 year 1st year 2nd year 3rd year 4th year 5th year 6th year cash flow 80 110 160 250 220 180 1. Calculated discounted payback period Discount factors at the cost of capital of 10% per annum 1st year 2nd year 3rd year 4th year 5th year 6th year 0.909 0.826 0.751 0.683 0.621 0.564 Please donot provide solution in image format provide solution in step by step format and fast solution

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