2. Project assessment Bumpole, Ltd is contemplating an 8-year project that will have sales that will grow 6 percent per year from a year 1 figure of $75.5 million and cash costs that will grow at 5 percent a year from a year 1 figure of $53 million. Machinery that needs to be purchased will cost $120 million and will last the 8 years and is depreciated by the straight-line method to zero. However this equipment will realise $15 million (pre-tax and in today's dollars) when resold at the end of the project. The annual inflation rate is expected to be 3 percent and the Rumpole Ltd project has a WACC of 8 percent in real terms (as distinct from nominal); and the corporate tax rate and capital gains tax rate are both 28 percent. The NWC required each year is 10 percent of expected annual sales. Required: (a) What is the nominal after-tax cash flow from operations (CFAT) for each of the eight years? (b) What is the real depreciation tax shield for each of the eight years? (c) What is WACC in nominal terms?

2. Project assessment Bumpole, Ltd is contemplating an 8-year project that will have sales that will grow 6 percent per year from a year 1 figure of $75.5 million and cash costs that will grow at 5 percent a year from a year 1 figure of $53 million. Machinery that needs to be purchased will cost $120 million and will last the 8 years and is depreciated by the straight-line method to zero. However this equipment will realise $15 million (pre-tax and in today's dollars) when resold at the end of the project. The annual inflation rate is expected to be 3 percent and the Rumpole Ltd project has a WACC of 8 percent in real terms (as distinct from nominal); and the corporate tax rate and capital gains tax rate are both 28 percent. The NWC required each year is 10 percent of expected annual sales. Required: (a) What is the nominal after-tax cash flow from operations (CFAT) for each of the eight years? (b) What is the real depreciation tax shield for each of the eight years? (c) What is WACC in nominal terms?

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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Acme Company is expanding and expects operating cash flows of $85,000 a year for 4 years as a result. This expansion requires $240,000 in new fixed assets. These assets will be worthless at the end of the project. In addition, the project requires a $15,000 investment in net working capital (assume NWC will be recovered at the end of the project). What is the net present value of this expansion project at a required rate of return of 15 percent? Question 1 options: $(3,375.49) $(3,638.02) $(3,750.54) $(3,563.01) $(3,825.55)
Please answer D and E only, thanks.
ces We are evaluating a project that costs $2,160,000, has a 8-year life, and has no salvage value. Assume that depreciation is straight-line to zero over the life of the project. Sales are projected at 90,900 units per year. Price per unit is $38.91, variable cost per unit is $24.00, and fixed costs are $863,000 per year. The tax rate is 21 percent and we require a return of 11 percent on this project. Suppose the projections given for price, quantity, variable costs, and fixed costs are all accurate to within ±10 percent. Calculate the best-case and worst-case NPV figures. Note: 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. Best-case NPV Worst-case NPV
Investapp Ltd is considering whether to undertake one of two mutually exclusive projects, each of which would require the purchase of an asset costing £50,000, which would have a zero scrap value at the end of four years. Cost of capital is estimated at 10%. The cash flows associated with the two projects are as follows: Project X £ Project Y £ Initial investment 50,000 50,000 Net cash inflows: Year 1 40,000 30,000 20,000 20,000 30,000 20,000 30,000 30,000 Year 2 Year 3 Year 4 Discount factors @ 10% Rate 10% Year 1.000 1 0.909 2 0.826 3 0.751 4 0.683
Nikul
1We are evaluating a project that costs $864,000, has an eight-year life, and has no salvage value. Assume that depreciation is straight-line to zero over the life of the project. Sales are projected at 71,000 units per year. Price per unit is $49, variable cost per unit is $33, and fixed costs are $765,000 per year. The tax rate is 35%, and we require a 10% return on this project. urgent please answer!! will like
Giant Machinery Ltd is considering to invest in one of the two following Projects to buy a new equipment. Each project will last 5 years and have no salvage value at the end. The company’s required rate of return for all investment projects is 9%. The cash flows of the projects are provided below. Project 1Cost $175,000 Project 2 Cost $185,000 Future Cash Flows For Project 1 Year 1 Year 2 Year 3 Year 4 Year 5 is 76,000 83,000 67,000 65,000 55,000 respectively. For Project 2 it is 87,000 78,000 69,000 65,000 57,000 for Year 1 Year 2 Year 3 Year 4 Year 5 resp. Required: a) Identify which project should the company accept based on NPV method. (Note: Please round up the result of each calculation of PV to 2 decimal places only for simplification) b) Identify which project should the company accept based on simple pay back method if the payback criteria is maximum 2 years. c) Which project Giant Machinery should choose if two methods are in conflict
You are considering the following project. What is the NPV of the project? WACC of the project: 0.10 Revenue growth rate: 0.05 Tax rate: 0.40 Revenue for year 1: 13,000 Fixed costs for year 1: 3,000 variable costs (% of revenue): 0.30 project life: 3 years Economic life of equipment: 3 years Cost of equipment: 20,000 Salvage value of equipment: 4,000 Initial investment in net working capital: 2,000
3.4 Springsteen Plc is considering a project with initial costs of £ 5,000,000. The project has a 5-year lifespan. The firm uses the straight-line depreciation approach to depreciate its fixed assets. Sales are forecast to be 650 units per year and the firm expects to sell the product for £5,500 per unit. The variable expenses for producing this output is estimated to be £2,800 per unit and the fixed costs are expected to be £290,000 per year. The required return is 12.5 percent and the relevant tax rate is 30 percent. The project will not have anyimpact on working capital requirements. The finance department believes that the price is accurate to within a±1.5 percent range while costs may vary by ±4 percent. (i) What is the sensitivity of the baseline operating cash flow to changes in thesales price? Interpret your answer.

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