12. Cameron Industries is purchasing a new chemical vapor depositor in order to makesilicon chips. It will cost $5,000,000 to buy the machine and $10,000 to have it delivered andinstalled. Building a clean room in the plant for the machine will cost an additional $3million. The machine is expected to raise gross profits by $4,500,000 per year, starting at theend of the first year, with associated costs of $1 million for each of those years. The machine isexpected to have a working life of six years and will be depreciated over those six years. Themarginal tax rate is 40%. What are the incremental free cash flows associated with the newmachine in year 2?A) $835,000B) $2,665,000C) $2,634,000D) $831,667

Incremental free cashflows for year 2 =[ ( Gross Profits - Associated costs - depreciation ) * (1…

Answered: 12. Cameron Industries is purchasing a…

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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Martin Enterprises needs someone to supply it with 141,000 cartons of machine screws per year to support its manufacturing needs over the next five years, and you’ve decided to bid on the contract. It will cost you $1,810,000 to install the equipment necessary to start production; you’ll depreciate this cost straight-line to zero over the project’s life. You estimate that, in five years, this equipment can be salvaged for $151,000. Your fixed production costs will be $266,000 per year, and your variable production costs should be $8.60 per carton. You also need an initial investment in net working capital of $131,000. If your tax rate is 21 percent and you require a return of 13 percent on your investment, what bid price per carton should you submit? Note: Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.
A company is considering the purchase of a new machine for $58,000. Management predicts that the machine can produce sales of $17,000 each year for the next 10 years. Expenses are expected to include direct materials, direct labor, and factory overhead totaling $7,000 per year including depreciation of $5,000 per year. The company's tax rate is 40%. What is the payback period for the new machine? a. 3.41 years. b. 6.44 years. c. 5.27 years. d. 11.60 years. e. 32.22 years. Carmel Corporation is considering the purchase of a machine costing $54,000 with a 7-year useful life and no salvage value. Carmel uses straight-line depreciation and assumes that the annual cash inflow from the machine will be received uniformly throughout each year. In calculating the accounting rate of return, what is Carmel's average investment? a. $27,000. b. $30,857. c. $54,000. d. $8,816. e. $7,714.
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The Candida Company wants to purchase a new machine for its factory operations at a cost of $475,000. The investment is expected to generate $175,000 in annual cash flows for a period of four years. The required rate of return is 14%. The old machine can be sold for $25,000. The machine is expected to have zero value at the end of the four-year period. Required: What is the net present value of the investment? Would the company want to purchase the new machine? Income taxes are not considered. a. $509,775; yes b. $34,775; no c. $59,775; yes d. $163,375; no
please show work i need to learn this. Cameron Industries is purchasing a new chemical vapor depositor in order to make silicon chips. It will cost $7,000,000 to buy the machine and $10,000 to have it delivered and installed. Building a clean room in the plant for the machine will cost an additional $3 million. The machine is expected to raise revenues by $3,000,000 per year, starting at the end of the first year, with associated costs (other than depreciation) of $1 million for each of those years. The machine is expected to have a working life of six years and will be depreciated over those six years. The marginal tax rate is 20%. What are the incremental free cash flows associated with the new machine in year 2? O $1,168,333 $831,667 $1,833,667 $1,165,000 O $665,334
Martin Enterprises needs someone to supply it with 175,000 cartons of machine screws per year to support its manufacturing needs over the next five years, and you've decided to bid on the contract. It will cost $2,300,000 to install the equipment necessary to start production; you'll depreciate this cost straight-line to zero over the project's life. You estimate that, in five years, this equipment can be salvaged for $185,000. Your fixed production costs will be $670,000 per year, and your variable production costs should be $9.23 per carton. You also need an initial investment in net working capital of $340,000. If your tax rate is 25 percent and you require a 11 percent return on your investment, what bid price per carton should you submit? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.) Bid price
Emperor's Clothes Fashions can invest $5 million in a new plant for producing invisible makeup. The plant has an expected life of 5 years, and expected sales are 6 million jars of makeup a year. Fixed costs are $3.8 million a year, and variable costs are $2.50 per jar. The product will be priced at $3.90 per jar. The plant will be depreciated straight-line over 5 years to a salvage value of zero. The opportunity cost of capital is 10%, and the tax rate is 30%. a. What is project NPV under these base-case assumptions? Note: Do not round intermediate calculations. Enter your answer in millions, rounded to 2 decimal places. b. What is NPV if variable costs turn out to be $2.80 per jar? Note: Do not round intermediate calculations. Enter your answer in millions, rounded to 2 decimal places. c. What is NPV if fixed costs turn out to be $3.3 million per year? Note: Do not round intermediate calculations. Enter your answer in millions, rounded to 2 decimal places. d. At what price per jar…
Your firm is contemplating the purchase of a new $500,000 computer-based order entry system. The system will be depreciated using the MACRS 5-year depreciation schedule. It will be worth $80,000 at the end of the project in 6 years. You will save $50,000 before taxes per year in order processing costs, and you will be able to reduce net working capital by $70,000. You will also increase sales by $100,000 per year for the first year and this number will increase by 3% per year. If the tax rate is 30 percent, and the required rate of return is 10%, what is the NPV of this project? Must be done in excel and use cell referencing.

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