3. A project promises to reduce operating expenses by $30 million per year. The project requires a significant nitial investment in net working capital, but in each subsequent year, the firm's net working capital will reduce by $10 million. The project requires no additional investment in fixed assets, but it does require the firm to repurpose other resources. These resources are already fully depreciated, but they were still generating approximately $10 million per year in their existing use case. You know that the firm pays taxes at a 30% rate. What is the annual free cash flow of this project?

3. A project promises to reduce operating expenses by $30 million per year. The project requires a significant nitial investment in net working capital, but in each subsequent year, the firm's net working capital will reduce by $10 million. The project requires no additional investment in fixed assets, but it does require the firm to repurpose other resources. These resources are already fully depreciated, but they were still generating approximately $10 million per year in their existing use case. You know that the firm pays taxes at a 30% rate. What is the annual free cash flow of this project?

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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[The following information applies to the questions displayed below.] Beacon Company is considering automating its production facility. The initial investment in automation would be $10.31 million, and the equipment has a useful life of 8 years with a residual value of $1,030,000. The company will use straight- line depreciation. Beacon could expect a production increase of 43,000 units per year and a reduction of 20 percent in the labor cost per unit. Current (no automation) 82,000 units Proposed (automation) 125,000 units Production and sales volume Per Unit Per Total Unit Total Sales revenue Variable costs Direct materials Direct labor Variable manufacturing $ 96 $ ? $ 96 $ ? $ 16 $ 16 15 ? 9 9 costs overhead Total variable manufacturing Contribution margin 40 ? $ 56 ? $ 59 ? Fixed manufacturing costs $ 1,240,000 $ 2,330,000 Net operating income. ? ? 5. Recalculate the NPV using a 10 percent discount rate. (Future Value of $1, Present Value of $1, Future Value Annuity of $1, Present…
The management of Kunkel Company is considering the purchase of a $34,000 machine that would reduce operating costs by $9,000 per year. At the end of the machine's five-year useful life, it will have zero scrap value. The company's required rate of return is 12%. Use Excel or a financial calculator to solve. Required: 1. Determine the net present value of the investment in the machine. (Any cash outflows should be indicated by a minus sign. Round answers to the nearest dollar.) Net present value 2. What is the difference between the total, undiscounted cash inflows and cash outflows over the entire life of the machine? (Any cash outflows should be indicated by a minus sign.) Total Cash Item Cash Flow Years Flows Annual cost savings Initial investment 1 Net cash flow %24 24
XYZ Corporation is studying a project that would have a ten-year life and would require a $450,000 investment in equipment which has no salvage value. The project would provide net operating income each year as follows for the life of the project (Ignore income taxes.): Sales $ 500,000 Less cash variable expenses 200,000 Less cash fixed expenses 150,000 Less depreciation expenses 45,000 Net operating income $ 105,000 The company's required rate of return is 12%. Compute the payback period for this project Enter your answer
A project requires an initial investment of $100,000 and is expected to produce a cash inflow before tax of $27,300 per year for five years. Company A has substantial accumulated tax losses and is unlikely to pay taxes in the foreseeable future. Company B pays corporate taxes at a rate of 21% and can claim 100% bonus depreciation on the investment. Suppose the opportunity cost of capital is 10%. Ignore inflation.a. Calculate project NPV for each company. (Do not round intermediate calculations. Round your answers to the nearest whole dollar amount.) b. What is the IRR of the after-tax cash flows for each company? (Do not round intermediate calculations. Enter your answers as a percent rounded to 1 decimal places.)
A five-year project has an initial fixed asset investment of $355,000, an initial NWC investment of $39,000, and an annual OCF of −$38,000. The fixed asset is fully depreciated over the life of the project and has no salvage value. If the required return is 11 percent, what is this project’s equivalent annual cost, or EAC? (A negative answer should be indicated by a minus sign. Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.)
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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
We are evaluating a project that costs $976,000, has a life of ten years, and has no salvage value. Assume that depreciation is straight-line to zero over the life of the project. Sales are projected at 144,000 units per year. Price per unit is $36, variable cost per unit is $25, and fixed costs are $984,784 per year. The tax rate is 23 percent, and we require a return of 13 percent on this project. The projections given for price, quantity, variable costs, and fixed costs are all accurate to within +/- 17 percent. a. Calculate the best-case NPV. Best case b. Calculate the worst-case NPV. Worst case
We are evaluating a project that costs $2,130,000, 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 90,600 units per year. Price per unit is $38.85, variable cost per unit is $23.95, and fixed costs are $860,000 per year. The tax rate is 25 percent, and we require a return of 11 percent on this project. a. Calculate the base-case operating cash flow and NPV. Note: Do not round intermediate calculations and round your answers to 2 decimal places, e.g., 32.16. b. What is the sensitivity of NPV to changes in the sales figure? Note: Do not round intermediate calculations and round your answer to 3 decimal places, e.g., 32.161. c. If there is a 450-unit decrease in projected sales, how much would the NPV change? Note: A negative answer should be indicated by a minus sign. Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16. d. What is the sensitivity…
A project requires an initial investment of $100,000 and is expected to produce a cash inflow before tax of $27, 300 per year for five years. Company A has substantial accumulated tax losses and is unlikely to pay taxes in the foreseeable future. Company B pays corporate taxes at a rate of 21% and can claim a 100% bonus depreciation immediately on the investment. Suppose the opportunity cost of capital is 10%. Ignore inflation. Calculate the project NPV for each company. What is the IRR of the after-tax cash flows for each company?
! Required information [The following information applies to the questions displayed below.] Beacon Company is considering automating its production facility. The initial investment in automation would be $7.40 million, and the equipment has a useful life of 6 years with a residual value of $1,040,000. The company will use straight- line depreciation. Beacon could expect a production increase of 36,000 units per year and a reduction of 20 percent in the labor cost per unit. Production and sales volume Sales revenue Variable costs Direct materials Direct labor Variable manufacturing overhead Total variable manufacturing costs Contribution margin Fixed manufacturing costs Net operating income Current (no automation) 77,000 units Net present value Per Unit $93 $16 25 10 51 $42 Total $ ? ? $ 1,240,000 ? Proposed (automation) 113,000 units Per Unit $93 $16 ? 10 ? $ 47 Total $ ? ? $ 2,330,000 ? 4. Using a discount rate of 14 percent, calculate the net present value (NPV) of the proposed…
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