A 3-year project will cost $375 at the end of year 1 and is expected to produce operating profit beforedepreciation and amortization (EBITDA) of $110 in year 1. $108 in year 2, and $150 in year 3.Depreciation, both real and financial, will be calculated using straight-line depreciation over 3 years.The cost of capital is 8%, and the firm's marginal tax rate is 25%. Calculate the project IRR if 100%equity financing is used.O 1.9 %O-2.0%O1.7 %O 1.3 %

To calculate the project's Internal Rate of Return (IRR), you can use the following formula:\[ IRR =…

Answered: A 3-year project will cost $375 at the…

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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2. A project costs $20,000, will be depreciated straight-line to zero over its 3 year life, and will required a net working capital investment of %5,000 up-front. The project generates OCF of $13,000. The fixed assets will be sold for $2,000 at the end of the project. If the firm has a tax rate of 34% and a required return of 12%, what is the project's NPV?
A project requires an initial investment of $100,000 and is expected to produce a cash inflow before tax of $26,700 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 9%. Ignore inflation. a. Calculate project NPV for each company. b. What is the IRR of the after-tax cash flows for each company? Complete this question by entering your answers in the tabs below. Required A Required B Calculate project NPV for each company. Note: Do not round intermediate calculations. Round your answers to the nearest whole dollar amount. Company A Company B NPV
A project with a life of 9 years is expected to provide annual sales of $ 410,000 and costs of $293,000. The project will require an investment in equipment of $715,000, which will be depreciated on a straight-line method over the life of the project. You feel that both sales and costs are accurate to +/- 10 percent. The tax rate is 21 percent. What is the annual operating cash flow for the best-case scenario? Multiple Choice $ 121,745 $93,361 $121,456 $164,650 $58,161
The Whilst Co. is analyzing a project that has projected sales of $189,400 and costs of $102,300. The project requires an investment in inventory of $15,000 plus another $28,000 in accounts receivable. Fixed assets of $80,000 are needed and will be depreciated straight-line over 5 years. Accounts payable will increase by $36,000. An interest expense of $11,000 will be incurred annually. The project has a life of 3 years. At the end of the three years, the equipment has an estimated market value of $26,000. The company requires a 14% rate of return and is in the 34% marginal tax bracket. What is the net present value of this project? $65,887 $68,023 $88,671 $91,425 None of the above.
A project requires an initial investment of $100,000 and is expected to produce a cash inflow before tax of $26,700 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 9%. Ignore inflation. A. Calculate project NPV for each company. B. What is the IRR of the after-tax cash flows for each company?
A 7-year project is expected to generate annual sales of 10,400 units at a price of $91 per unit and a variable cost of $62 per unit. The equipment necessary for the project will cost $437,000 and will be depreciated on a straight-line basis over the life of the project. Fixed costs are $265,000 per year and the tax rate is 35 percent. How sensitive is the operating cash flow to a $1 change in the per unit sales price?
Slithering Snakes is considering adding a new product line that is expected to increase annual sales by $355,000 and cash expenses by $277,000. The Initial investment will require $385,000 in fixed assets that will be depreciated using the straight-line method to a zero book value over the five-year life of the project. The company has a marginal tax rate of 21 percent. What is the annual value of the depreciation tax shield. Multiple Choice $77,000 $15,223 $16,170 $19,260 $18,180
Carper Company is considering a capital investment of $400,000 in additional productive facilities. The new machinery is expected to have useful life of 6 years with no salvage value Depreciation is by the straight-line method. During the life of the investment, annual net income and net annual cash flows are expected to be $25,000 and $90,000, respectively. Carper has an 10% cost of capital rate, which is the required rate of return on the investment. (a) Compute the cash payback period. (b) Using the discounted cash flow technique, calculate the NPV.
A project requires an initial investment in equipment and machinery of $10 million. The equipment is expected to have a 5-year lifetime with no salvage value and will be depreciated on a straight-line basis. The project is expected to generate revenues of $5.1 million each year for the 5 years and have operating expenses (not including depreciation) amounting to 1/3 of revenues. The tax rate is 40%. What is the net cash flow in year 1? Group of answer choices 3.40M 2.84M 0.84M 2.04M
A project with a life of 7 years is expected to provide annual sales of $270,000 and costs of $181,000. The project will require an investment in equipment of $505,000, which will be depreciated on a straight-line method over the life of the project. You feel that both sales and costs are accurate to +/-10 percent. The tax rate is 21 percent. What is the annual operating cash flow for the best-case scenario? Multiple Choice O O $80,460 $95,907 $82,497 $55,197 $121,089
A project costs $65,000, will be depreciated straight-line to zero over its 4 year life, and will require a net working capital investment of $5,000 up-front. The firm has a tax rate of 35% and a required return of 15%. The project generates an annual operating cash flow (OCF) of $22,000. What is the project's NPV? $-2,190.48 $-26,315.04 $+5,089.72 $-4,331.71 $-7,190.48
What is the NPV of project D? Assume that the firm requires a minimum after-tax return of 8% on investment. Project D costs $5,000 and will generate sales of $4,000 each year for 5 years. The cash expenditures will be $1,500 per year. The firm uses straight-line depreciation with an estimated salvage value of $500 and has a tax rate of 25%. (2) What is the book rate of return based on the average book value? (Round your answer to 2 decimal places.)

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