4. A geotechnical engineering firm has been awarded a job to design the foundation of anoffice building. The project is postponed and will not start for four more years. The firmneeds to estimate the present worth of the costs of the project. At the year four, the costwill be $175,000 decreasing by $50,000 per year for the next three years. If the interestrate is 4%, what is the present worth of the projected cost of the project?

Present worth of the project = Sum of (Cash outflows*present value factor) Year Cash Flow c…

Answered: 4. A geotechnical engineering firm has…

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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A company wants to purchase a piece of equipment that costs $18,000. In 8 years, that same piece of equipment is expected to have a salvage value of $5,000. The estimated annual maintenece cost is $1,000 in the first year, but is expected to increase by $300 each year thereafter. What is the present worth of the project, using a 10% interest rate.
The following project takes place over a 20 year period of time. Suppose that an electric motor factory will take a year to build : $7 million is spent right away and another $7 million is spent at the end of the first year. Also, suppose the factory is expected to lose $1.0 million at the end of year two and $0.5 million at the end of year three. At the end of each of the years, four through 20, it will earn $1.08 million, when it will be scrapped for $1.0 million at the end of year 20. If the discount rate is 3 percent, what is the NPV in million? Is the investment worthwhile?
All American Telephones Inc. is considering the production of a new cell phone. The project will require an investment of $13 million. If the phone is well received, the project will produce cash flows of $8 million a year for 3 years, but if the market does not like the product, the cash flows will be only $1 million per year. There is a 50% probability of both good and bad market conditions. All American can delay the project a year while it conducts a test to determine whether demand will be strong or weak. The delay will not affect the dollar amounts involved for the project's investment or its cash flows-only their timing. Because of the anticipated shifts in technology, the 1-year delay means that cash flows will continue only 2 years after the initial investment is made. All American's WACC is 9%. What's the NPV without waiting? What's the NPV of waiting 1 year?
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The Adderley Corporation is considering investing in a new machine that has an estimated life of three years. The cost of the machine (in 5 millions) is $500 and the machine will be depreciated straight line over its three-year life to a residual value of $0. The machine will result in sales of 300 million widgets in year 1 with future sales estimated to grow by 10% per year. The price per widget that Adderley will charge its customers is $19 and is to remain constant over the three years. The widgets have a cost per unit to manufacture of $7 each. Installing the machine and the resulting increase in manufacturing capacity will require an increase in various net working capital accounts. It is estimated that the company will need to hold 3% of its annual revenues in cash, 4% of its annual revenues in accounts receivable, 13% of its annual revenues in inventory, but will also benefit from trade financing (ie, accounts payable) equal to 6% of its annual revenues. The firm is in the 28%…
Jazz town, Inc., is considering a new product launch. The firm expects to have an annual operating cash flow of $9.0 million for the next 9 years. The discount rate for this project is 12 percent for new product launches. The initial investment is $37.5 million. Assume that the project has no salvage value at the end of its economic life. After the first year, the project can be dismantled and sold for $26.1 million. If the estimates of remaining cash flows are revised based on the first year’s experience, at what level of expected cash flows does it make sense to abandon the project?
A company is considering an investment in a machine. The machine will cost $250,000 and will have a seven year useful economic life. It has a salvage value of $50,000. The expected annual operating costs for the machine would be $30,000 (for each year of the seven years). Assume that the company's desired return on its investment (MARR) is 11%, find the annual equivalent cost (AEC)?
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Joanette, Incorporated, is considering the purchase of a machine that would cost $620,000 and would last for 10 years, at the end of which, the machine would have a salvage value of $62,000. The machine would reduce labor and other costs by $122,000 per year. Additional working capital of $8,000 would be needed immediately, all of which would be recovered at the end of 10 years. The company requires a minimum pretax return of 16% on all investment projects. (Ignore income taxes.) Click here to view Exhibit 14B-1 and Exhibit 14B-2, to determine the appropriate discount factor(s) using the tables provided. Required: Determine the net present value of the project. (Negative amount should be indicated by a minus sign. Round your intermediate calculations and final answer to the nearest whole dollar amount.) Net present value

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