7), Emkay, Inc. is considering an investment in a new production equipment to boost its revenue.For this new investment, the following data apply:Purchase price = $900,000 $360,000 from company funds and $540,000 from a loan}Useful Life: 4 yearsDepreciation: MACRS-GDS 3-year propertyEffective tax rate: 35%Estimated salvage: $90,000Estimated annual O&M costs: $48,000Estimated new annual revenue: $360,000Conditions on loan: Nominal annual rate of 5% per year compounded annually. The loan is to be repaid over3 years with equal annual payments.3a)Loan calculations - principal and interest payments. (Round off values to the nearest dollar)b)'EOY BT&LCF02Find the ATCF for each year of this investment (Round off values to the nearest dollar).MACRS-GDSDeduction3LoanLoanInterestPrincipalPayment PaymentTaxableIncomeTaxATCF

A loan is a contract between two parties where one receives an amount of money from another in…

Answered: 7) EmKay, Inc. is considering an…

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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Bartlett Car Wash Co. is considering the purchase of a new facility. It would allow Bartlett to increase its net income by $107,868 per year. Other information about this proposed project follows: Initial investment Useful life $521,100 10 years Salvage value $ 52,000 Assume straight line depreciation method is used. Required: 1. Calculate the accounting rate of return for Bartlett. (Round your percentage answer to 2 decimal places.) 2. Calculate the payback period for Bartlett. (Round your answer to 2 decimal places.) 1. Accounting Rate of Return 2. Payback Period years
Bartlett Car Wash Company is considering the purchase of a new facility. It would allow Bartlett to increase its net income by $96,579 per year. Other information about this proposed project follows Initial investment $468,810 9 years Selvage value $ 47,000 Assume straight line depreciation method is used. Required: 1. Calculate the accounting rate of return for Bartlett Note: Round your percentage answer to 2 decimal places. 2. Calculate the payback period for Bartlett Note: Round your answer to 2 decimal places. 1. Accounting Rate of Retu 2. Payback Period years
Required information [The following information applies to the questions displayed below.] Tory Enterprises pays $250,400 for equipment that will last five years and have a $44,800 salvage value. By using the equipment in its operations for five years, the company expects to earn $89,700 annually, after deducting all expenses except depreciation. Prepare a table showing income before depreciation, depreciation expense, and net (pretax) income for each year and for the total five-year period, assuming straight-line depreciation is used. Year 1 Year 2 Year 3 Year 4 Year 5 Totals Answer is complete but not entirely correct. Income Before Depreciation Depreciation Net (Pretax) Income Expense $ 89,700 89,700 89,700 89,700 89.700 448,500 $ $ 100,160 $ 100,096 X 36,058 X 9,286 x 0 245,600 $ (10,460) X 29,604 53,642 80,414 89,700 242,900
(c) TYM Music Corporation is considering the purchase of a new soundboard, used inrecording studios to improve sound effects. The new soundboard requires an initialinvestment of $150,000. A fully depreciated existing soundboard may be disposed offor $40,000 pre-tax. The purchase will have a five-year life and is expected to produceadditional revenue of $65,000 per year. Expenses other than depreciation will be$15,000 per year. The new soundboard will be depreciated to zero over five years, butit is expected to be sold for $20,000 and has a 35% tax rate.(i) Calculate the net initial outlay for the new soundboard purchase. (ii) Calculate the operating cash flow for years 1 to 4.(iii) Calculate the total cash flow at the end of year five (operating cashflow for year 5 plus terminal cash flow).
Required information [The following information applies to the questions displayed below.] Montego Production Company is considering an investment in new machinery for its factory. Various information about the proposed investment follows: Initial investment Useful life Salvage value Annual net income generated Montego's cost of capital Assume straight line depreciation method is used. Help Montego evaluate this project by calculating each of the following: $ 860,000 6 years Net Present Value $ 20,000 $ 66,000 11% Required: 4. Recalculate Montego's NPV assuming its cost of capital is 12 percent. (Future Value of $1, Present Value of $1. Future Value Annuity of $1, Present Value Annuity of $1.) Note: Use appropriate factor(s) from the tables provided. Negative amount should be indicated by a minus sign. Round your answer to 2 decimal places.
B2B Company is considering the purchase of equipment that would allow the company to add a new product to its line. The equipment costs $360,000 and has a 12-year life and no salvage value. The expected annual income for each year from this equipment follows. Sales of new product Expenses Materials, labor, and overhead (except depreciation) Depreciation-Equipment Selling, general, and administrative expenses Income (a) Compute the annual net cash flow. (b) Compute the payback period. (c) Compute the accounting rate of return for this equipment. Complete this question by entering your answers in the tabs below. Required A Compute the annual net cash flow. Required B Required C Annual Results from Investment Sales of new product Expenses Materials, labor, and overhead (except depreciation) Depreciation Equipment Selling, general, and administrative expenses. Income Net cash flow Income $ 225,000 $ 120,000 30,000 22,500 52,500 $ 225,000 120,000 30,000 22,500 $ 52,500 Cash Flow Flow
Explorer Company is considering the following investment proposal: Initial investment: Depreciable assets (straight-line) $28,800 Working capital 3,200 Operations (per year for 4 years): Cash receipts $20,000 Cash expenditures 8,800 Disinvestment: Salvage value of equipment $2,400 Recovery of working capital 3,200 Discount rate: 10 percent Additional information for interest rate of 10 percent and four time periods: Present value of $1 0.68301 Present value of an annuity of $1 3.16987 What is the net present value for the investment? Select one: a. $14,658 b. $35,503 c. $3,825 d. $7,327
! Required information [The following information applies to the questions displayed below.] Project Y requires a $331,500 investment for new machinery with a five-year life and no salvage value. The project yields the following annual results. Cash flows occur evenly within each year. (PV of $1, EV of $1, PVA of $1, and FVA of $1) Note: Use appropriate factor(s) from the tables provided. Annual Amounts Sales of new product Expenses Materials, labor, and overhead (except depreciation) Depreciation-Machinery Selling, general, and administrative expenses Income Project Y $ 400,000 179,200 66,300 29,000 $ 125,500 3. Compute Project Y's accounting rate of return. Project Y Accounting Rate of Return Denominator: Numerator: / Accounting Rate of Return 0
The following data pertain to an investment proposal (Ignore income taxes.): Cost of the investment $ 35,000 Annual Income $ 12,000 Estimated salvage value $ 6,000 Life of the project 4 years Discount rate 10% The net present value of the proposed investment is closest to: Round to nearest dolla
Your company has purchased a new piece of equipment for $1,000,000 and the equipment has a useful life of 5 years and uses the straight-line method of depreciation. It is estimated that labor costs and maintenance costs will be reduced by $500,000 per year for the next 5 years. Your company has a hurdle rate of 10%. Calculate the Net Present Value (NPV) for the equipment purchase. a) $895,000 b) $735,000 c) $525,000 d) $1,000,000 I got option a, I also think this is correct.
Consider a project with a life of 3 years with the following information: initial fixed asset investment = salvage value; price = $35; variable costs $13; fixed costs = $112,000; quantity sold = 53,760 units; tax rate = 23 percent. How sensitive is OCF to changes in quantity sold? $320,000; straight-line depreciation to zero over the 3-year life; zero Multiple Choice $21.85 $0.06 $19.31
Most Company has an opportunity to invest in one of two new projects. Project Y requires a $320,000 investment for new machinery with a six-year life and no salvage value. Project Z requires a $320,000 investment for new machinery with a five-year life and no salvage value. The two projects yield the following predicted annual results. The company uses straight-line depreciation, and cash flows occur evenly throughout each year. Project Y Project Z Sales $ 385,000 $ 308,000 Expenses Direct materials 53,900 38,500 Direct labor 77,000 46,200 Overhead including depreciation 138,600 138,600 Selling and administrative expenses 28,000 27,000 Total expenses 297,500 250,300 Pretax income 87,500 57,700 Income taxes (38%) 33,250 21,926 Net income $ 54,250 $ 35,774 Compute each project’s accounting rate of return.

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