a) A financial analyst for a manufacturer of BMV spare part is considering using its new engine. The production of the engine can be used over the 4 years, with zero salvage value at the end of year 4. The project's initial investment is RM60,000 which depreciates under straight-line method and its discount rate is 10 percent. The firm's corporate tax rate is 40 percent. Items Expected 500 75 50 2000 Pessimistic Optimistic 800 Unit sales (unit) Price/unit (RM) Variable cost/unit (RM) Fixed costs/annum (RM) 200 65 60 3000 100 30 1000 Given the above information on the results of launching the new engine, you are required to compute:

a) A financial analyst for a manufacturer of BMV spare part is considering using its new engine. The production of the engine can be used over the 4 years, with zero salvage value at the end of year 4. The project's initial investment is RM60,000 which depreciates under straight-line method and its discount rate is 10 percent. The firm's corporate tax rate is 40 percent. Items Expected 500 75 50 2000 Pessimistic Optimistic 800 Unit sales (unit) Price/unit (RM) Variable cost/unit (RM) Fixed costs/annum (RM) 200 65 60 3000 100 30 1000 Given the above information on the results of launching the new engine, you are required to compute:

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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6. A drill press costs $30,000 and is expected to have a 10 year life. The drill press will be depreciated on a straight-line basis over 10 years to a zero estimated salvage value. This machine is expected to reduce the firm's cash operating costs by $4,500 per year. If the firm is in the 40 percent marginal tax bracket, determine the annual net cash flows generated by the drill press.
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2. A firm is considering purchasing equipment that will reduce costs by P40,000. The equipment costs P300,000 and has a salvage value of P50,000 and a life of 7 years. The annual maintenance cost is P6, 000. While not in use by the firm, the equipment can be rented to others to generate an income of P10, 000 per year. If money can be invested for an 8 per cent return, is the firm justified in buying the equipment? a. Rate of Return Method Annual Worth Method b. c. Present Worth Method d. Future Worth Method
1.
Coronado, Inc. is considering purchasing equipment costing $39000 with a 7-year useful life. The equipment will provide cost savings of $8700 and will be depreciated straight-line over its useful life with no salvage value. Coronado Inc. requires a 9% rate of return. What is the approximate internal rate of return for this investment? Period 7 10% O 11% 000 9% 8% 7% 5.389 8% Present Value of an Annuity of 1 5.206 9% 5.033 10% 4.868 11% 4.712 14% 4.288
Listen You want to buy a new equipment to replace an existing one. The new equipment will be depreciated down to zero using straight-line depreciation over its 10-year life. The project is a 10-year project. The market value of the new equipment at the end of year 10 is expected to be 0. The new equipment will replace an existing old equipment that has 10 years left of depreciation at a $3,000 a year. The estimated before tax proceeds from selling this existing equipment is $15,000 today. The market value in 10 years for this old equipment would be 0. The new equipment will generate annual cost savings of $12,000 before taxes. The tax rate is 20% and the discounting rate is 10%. What is the maximum price you are willing to pay today for the new equipment? For your answer, do not enter the dollar sign ($), DO NOT use commas, and you can round to zato decimals (the nearest dollar). Your Answer: Answer
4
Gibson Mfg., Inc. is considering the introduction of a new product. Company management has prepared the following estimates related to the project as well as the related range of values, where applicable. The project under consideration has a five-year life and initial costs of $15,000. Assume the tax rate is 34 percent, there is no salvage value, and the project requires a 12 percent rate of return. sales quantity 2000 +_7percent sales price $14+_10 percent variable cost per unit $10+_2percent fixed costs $8+_1percent depreciation $3000 What is the contribution margin under the pessimistic scenario? a)$2.4 b)$3.8 c)$4.0 d)$5.6
Consider a four-year project with the following information: initial fixed asset investment $560,000; straight-line depreciation to zero over the four-year life; zero salvage value; $38; variable costs = $26; fixed costs = $235,000; quantity sold = 82,000 units; tax rate = 25 percent. price a. What is the degree of operating leverage at the given level of output? (Do not round intermediate calculations and round your answer to 4 decimal places, e.g., 32.1616.) b. What is the degree of operating leverage at the accounting break-even level of output? (Do not round intermediate calculations and round your answer to 4 decimal places, e.g., 32.1616.) B Degree of operating leverage b. Degree of operating leverage
4.
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