17. Consider a marine salvage company that has located a sunken ship known to contain treasure that could be sold for $12.1 million if it were brought to the surface. The time and cost required to recover the treasure are uncertain. If the firm invests $2 million now, there is a 50% chance that it will recover the treasure in 1 year at no additional cost. However, there is also a 50% chance that the firm will find that an additional expenditure of $22 million at the beginning of the second year will be needed to salvage the treasure at the end of the second year. Suppose that the interest rate is 10%. What is the NPV of immediately undertaking a commitment to raise the sunken treasure? (a) -1.5 million (b) -0.5 million (c) 1.5 million (d) 2.5 million (e) 3.5 million

17. Consider a marine salvage company that has located a sunken ship known to contain treasure that could be sold for $12.1 million if it were brought to the surface. The time and cost required to recover the treasure are uncertain. If the firm invests $2 million now, there is a 50% chance that it will recover the treasure in 1 year at no additional cost. However, there is also a 50% chance that the firm will find that an additional expenditure of $22 million at the beginning of the second year will be needed to salvage the treasure at the end of the second year. Suppose that the interest rate is 10%. What is the NPV of immediately undertaking a commitment to raise the sunken treasure? (a) -1.5 million (b) -0.5 million (c) 1.5 million (d) 2.5 million (e) 3.5 million

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. Schultz Company is considering purchasing a machine that would cost $478,800 and have a useful life of 5 years. The machine would reduce cash operating costs by $114,000 per year. The machine would have a salvage value of $6,200. Schultz Company prefers a payback period of 3.5 years or less.Required: a. Compute the payback period for the machine. What does this mean? b. Compute the return on average investment (ROI)
1. what amount should be used as the initial cash flow for this project and why?? 2. What is the after-tax salvage value for the spectrometer? 3. What is the MPV of the project? Should the firm accept or reject this project?
5. Does your company want to purchase this machine that will provide cost savings of $100,000 annually for its useful life (8 years)? The cost is $250,000; tax rate is 36% and discount rate is 14%. Compute straight-line depreciation for 8 years with zero salvage value. Calculate the cash flows and determine the NPV and IRR. Does your company want to buy this machine?
2. Switching to powder coating technology will reduce the emission of volatile organic carbons (VOCs) for a firm's production process. The initial cost is $300,000 with annual costs of $35,000 and savings of $80,000 per year. The salvage value 10 years from now is projected to be $75,000. What rate of return will the firm make on this investment? Round your answer to the nearest .01 percent.
18. Suppose the marine salvage company described in the previous problem has located another ship that also contains treasure that could be sold for $12.1 million if it were brought to the surface. The firm is certain that if it invests $6.6 million now, it can recover the treasure in 1 year at no additional cost. The uncertainty now relates to the ownership of the ship. A government agency is currently considering whether the treasure found at this location belongs wholly to the finder or must be shared with a previous owner. In the latter case, the finder would be allowed to recover its direct costs ($6.6 million) but would have to turn over to the previous owner the remaining proceeds from the sale of the treasure. A ruling on this issue is expected in 1 salvąge company's manager believes the probability of a favorable ruling is 0.3. The rate of interest is 10%. What is the expected NPV of waiting until the ownership issue is settled in 1 year before deciding whether to undertake…
give me the right answer only ASAP Suppose we are thinking about replacing an old computer with a new one. The old one cost us $1.4 million; the new one will cost $1.7 million. The new machine will be depreciated straight-line to zero over its five-year life. It will probably be worth about $325,000 after five years. The old computer is being depreciated at a rate of $281,000 per year. It will be completely written off in three years. If we don’t replace it now, we will have to replace it in two years. We can sell it now for $450,000; in two years, it will probably be worth $130,000. The new machine will save us $315,000 per year in operating costs. The tax rate is 22 percent, and the discount rate is 12 percent. a-1. Calculate the EAC for the old and the new computer. (A negative answer should be indicated by a minus sign. Do not round intermediate calculations and round your answers to 2 decimal places, e.g., 32.16.) a-2. What is the NPV of the decision to…
Rahul
a) Titiwangsa Corporation is using a computer where its original cost was RM25,000. The machine is now 5 years old and has a current market value of RM5,000. The computer is being depreciated over a 10-year life toward zero salvage value. Depreciation is on straight line basis. Management is contemplating to purchase a new computer which will cost RM50,000 and the estimated salvage value is RM1,000. Expected savings from the new computer is RM3,000 a year. Depreciation is on straight line basis over a seven-year life and the cost of capital is 10%. If the tax rate is 50%, should the firm replace the asset?
* 00 The management of Ballard MicroBrew is considering the purchase of an automated bottling machine for $67000. The machine would replace an old piece of equipment that costs $18,000 per year to operate. The new machine would cost $8.000 per year to operate. The old machine currently in use could be sold now for a salvage value of $29,000. The new machine would have a useful life of 10 years with no salvage value. 1 What is the annual depreciation expense associated with the new bottling machine? 2 What is the annual incremental net operating income provided by the new bottling machine? 3. What is the amount of the initial investment associated with this project that should be used for calculating the simple rate of return? 4. What is the simple rate of return on the new bottling machine? (Round your enswer to 1 declmal place L.e. 0.123 should be considered as 12.3%.) Depreciation expense 2. Incremental net operating income Initial investment, 4. Simple rate of return < Prev 2 of 2…

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