3. A delivery company is expanding its fleet of work vans at an initial cost of $100,000. Operation and maintenance costs for the new vehicles are expected to be $20,000/year for the next 10 years. After 10 years, the vans will be sold for a total of $10,000. The annual revenue increase associated with this fleet upgrade is expected to be $50,000. What is the company’s rate of return on this investment?

3. A delivery company is expanding its fleet of work vans at an initial cost of $100,000. Operation and maintenance costs for the new vehicles are expected to be $20,000/year for the next 10 years. After 10 years, the vans will be sold for a total of $10,000. The annual revenue increase associated with this fleet upgrade is expected to be $50,000. What is the company’s rate of return on this investment?

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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Compute the present value, P, for the following cash flows. You supervise an aging production line that constantly needs maintenance and new parts. Last month you spent $25,000 replacing a failed controller. Should the following plan be accepted if the interest rate is 15%? The net installed cost of the new line to replace the old line is $600,000 with a useful life of six years. In the first year its operating cost will be $100,000, and it will generate annual revenues of $300,000. Each year the operating cost will increase by $5000 and the revenues will fall by $15,000. After six years the equipment will have a value of $100,000 in the next re-building of the line.
A company needs to decide whether or not to proceed with a 8-year project, which is expected to create after-tax cash inflows of $375,000 annually during the 8 years. A $2,000,000 cash outflow would be required at the begininng of the project. If the company requires a 9% return on investment, what is the NPV for this project? 4
Replacing old equipment at an immediate cost of $50,000 and an additional outlay of $30,000 six years from now will result in savings of $3,000 per quarter for 12 years. The required rate of return is 10% compounded annually. Determine the net present value and if the investment should be accepted or rejected.
Management is considering buying a pump that costs $20,000 and could save them $7,500 per year over the next 3 years in maintenance costs. If our desired rate of return on any investment is 14% per annum, should we make the investment? Present value of $1 Period 10% 12% 14% 1 0.909 0.893 0.877 0.826 0.797 0.769 3 0.751 0.712 0.675 4 0.683 0.636 0.592 5 0.621 0.567 0.519
You are considering a large CNC equipment purchase. You will need an initial deposit of $165,000. The annual revenues expected to come from the use of the CNC equipment are $85,000 starting in year 1 increasing by $4000 each year (i.e. $85,000 in year 1, $89,000 in year 2, etc.). Annual operating and maintenance costs are expected to be $35,000 every year starting in year 1. The equipment is expected to last for 15 years. What is the ROR? Question 6 Part C: Provide the ROR for the purchase. Enter your answer in the form 12.34 (for example, 12.34% would be entered as 12.34)
7. A company is considering purchasing equipment for a new product line. The initial investment is R1,500,000. The equipment needs an upgrade after 5 years, this will cost another R750,000. The incremental cashflows for the next 10 years will be R500,000 per year, starting from the end of the first year. The investment period is 10 years. The company's WACC is 12%. Calculate the NPV and the MIRR for the project. Should the company invest in the equipment?
A manufacturing company is considerign the purchase of new machinery to increase its production capacity. The company has identified a new machine that costs $500,000 and is expected to increase production by 20%. The company expects to sell the additional products for $600,000, resulting in a net profit of $100,000. The company can finance the purchase through a bank loan with an interest rate of 5% over a five year term. What is the expected return on investment (ROI) for the purchase of the new machinery 5% 10% 20% 25%
1. Show your solutions completely. The ABC Freight Company has invested USD80,000 in a new sorting machine that is expected to produce a return of USD9,000 per year for the next 10 years. a.) At a 9% annual interest rate, is this investment worthwhile? b.) If the new machine was not purchased and the amount of USD80,000 was invested in another business that would give a 10% interest rate, what would be the equivalent future amount at the end of 10 years? Mr. Mason wants to open an account in a bank with a 3% interest rate, so he can withdraw after the 25th year the amount of USD4,500 each year for 5 years. a.) How much should he deposit now? b.) should he decide not to withdraw any amount after 25 years, and instead withdraw the whole amount at the end of the 30th year, how much can he withdraw assuming that the interest rate is uniform? c. If Mr. Mason wishes to withdraw the amount of USD4,500 each year for 5 years, beginning at the end of the first year after the making the initial…
Innovation Company is thinking about marketing a new software product. Upfront costs to market and develop the product are $4.97 million. The product is expected to generate profits of $1.08 million per year for ten years. The company will have to provide product support expected to cost $99,000 per year in perpetuity. Assume all profits and expenses occur at the end of the year. a. What is the NPV of this investment if the cost of capital is 6.2%? Should the firm undertake the project? Repeat the analysis for discount rates of 1.6% and 14.2%, respectively. b. What is the IRR of this investment opportunity? c. What does the IRR rule indicate about this investment?

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