A commercial building design cost $91/square-foot to construct eight years ago (for an 77,000-square-foot building). This construction cost has increased 5.5% peryear since then. Presently, your company is considering construction of a 130,000-square-foot building of the same design. The cost capacity factor is X = 0.91. Inaddition, it is estimated that working capital will be 4% of construction costs, and that project management, engineering services, and overhead will be 4.2%, 8%, and30%, respectively, of construction costs. Also, it is estimated that annual expenses in the first year of operation will be $6/square foot, and these are estimated toincrease 5.67% per year thereafter. The future general inflation rate is estimated to be 6.69% per year, and the market-based MARR = 12% per year (im).Click the icon to view the interest and annuity table for discrete compounding when i = 12% per year.a. What is the estimated capital investment for the 130,000-square-foot building?The estimated capital investment is $25.32 million. (Round to two decimal places.)b. Based on a before-tax analysis, what is the PW for the first 10 years of ownership of the building?More InfoPW=$ million (Round to two decimal places.)Enter your answer in the answer box, then click Check Answ1 part remainingN1245678910WorthFactorSingle PaymentCompound PresentAmountFactorTo Find FGiven PF/P1.12001.25441.40491.57351.76231.9738Discrete Compounding; i = 12%2.21072.47602.77313.1058To Find PGiven FP/F0.89290.79720.71180.63550.56740.50660.45230.40390.36060.3220CompoundAmountFactorTo Find FGiven AF/A1.00002.12004.77936.35288.115210.089012.299714.775717.5487Uniform SeriesPresent SinkingWorthFactorTo Find PGiven AP/AFundFactorTo Find AGiven FA/F1.00000.4717.29630.20920.15740.12320.89291.69012.40183.03733.60484.11144.56384.96765.32825.65020.09910.08130.06770.0570OXCapitalRecoveryFactorTo Find AGiven PA/P1.12000.59170.41630.32920.27740.24320.21910.20130.18770.1770

Present worth, also known as present value, is a financial concept used to evaluate the current…

Answered: A commercial building design cost…

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 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?
The engineering team at Manuel’s Manufacturing, Inc., is planning to purchase an enterprise resource planning (ERP) system. The software and installation from Vendor A costs $380,000 initially and is expected to increase revenue $125,000 per year every year. The software andinstallation from Vendor B costs $280,000 and is expected to increase revenue $95,000 per year. Manuel’s uses a 4-year planning horizon and a 10%/year MARR. Solve, a. What is the future worth of each investment?b. What is the decision rule for determining the preferred investment basedon future worth ranking? c. Which (if either) ERP system should Manuel purchase?
You are evaluating two projects. You may accept only one of them. Project one will cost $379,000 initially and will pay $134,000 each year for the next 5 years. Project two will cost $454,000 initially, but will pay $101,000 for the next 10 years. The firm's cost of capital is 15%. Use the replacement chain approach to compute the NPV of each project. Which project has the highest NPV and by how much? Round your answers to the nearest dollar.
Oakmont Company has an opportunity to manufacture and sell a new product for a four-year period. After careful study, Oakmont estimated the following costs and revenues for the new product: (Attached table) When the project concludes in four years the working capital will be released for investment elsewhere within the company. Required: Using Excel (this will save you time and effort) answer the following: Oakmont’s cost of capital is 15%, and management does not feel it should have any adjustment for risk, compute the NPV. Same situation as (a), but management does feel this project does possess a greater than average risk, so 19% should be the required rate of return. Compute the NPV. Management thinks that if they can spend another $10,000 on advertising each of the next 4 years (at the end of the year), it will cause sales volume to increase by 10% for each of the next 4 years. (Assume all cash flows occur at the end of the year) Compute NPV using a 15% cost of capital.
A factory costs $810,000. You reckon that it will produce an inflow after operating costs of $171,000 a year for 11 years. a. If the opportunity cost of capital is 7%, what is the net present value of the factory?
A project requires an initial investment in equipment of $96,600 and then requires an initial investment in working capital of $14,400 (at t= 0). You expect the project to produce sales revenue of $131,000 per year for three years. You estimate manufacturing costs at 60 percent of revenues. (Assume all revenues and costs occur at year-end [i.e., t= 1, t= 2, and t=3]). The equipment depreciates using straight-line depreciation over three years. At the end of the project, the firm can sell the equipment for $12,420 and recover the investment in net working capital. The corporate tax rate is 21 percent and the cost of capital is 15 percent. Calculate the NPV of the project. Multiple Choice O O O $4,679 -$3,574 $13,573
A company that manufactures high-strength epoxys is considering investing $100,000 in two new adhesives identified as X and Z. The investment in X is $20,000 and is expected to yield a rate of return of 40% per year. Your supervisor asked you to determine what rate of return would be required on the remaining $80,000 in order for the total return to be at least 25%. You responded that the return would have to be at least Multiple Choice O O 10.4% 16.8% 21.3% 24.1%
Consider an order delivery business that will be a 5-year project. The required net working capital is $6.6 million and it will be returned at the end of the life of the project. Required equipment (net capital spending) will cost $15 and it will be depreciated straight-line to 0 over the 5-year life of the project. The business will have sales of $3 million in year 1, $6 million in year 2, and $10 million in years 3, 4, and 5. Costs are 30% of sales and the tax rate is 20%. (If there is a loss at the EBIT line, assign taxes of 0 for that year and do not carry tax losses forward.) The equipment has no salvage value. Create an income statement for years 1, 2, and 3, 4, and 5 (3, 4, and 5 will have the same income statement). Use the information from the income statement to calculate the operating cash flow using EBIT + depreciation – taxes for each year. Put all cash flows (net working capital, net capital spending, and operating cash flows) on a timeline. Using total cash flows from…
Thunderbolt Corporation is considering an investment project to produce electric gadgets. Cathie Wood projected unit sales of these gadgets to be 10,000 in the first year, with growth of 6.5 percent each year over the subsequent five years (so the total project life is six years). Production of these gadgets will require $1,200,000 in net working capital to start. The net working capital will be recovered at the end of the project. Total fixed costs are $3,000,000 per year, variable production costs are $350 per unit, and the units are priced at $850 each. The equipment needed to begin production will cost $8,400,000. The equipment will be depreciated using the straight-line method over a six-year life and has a pre-tax salvage value of $520,000 when the project closes. The tax rate is 25%. a) Using Excel, set up a table that shows your detailed calculation with formulas of the project cash flows for each year throughout the life of the project.
Your company is deciding whether to purchase a high-quality printer for your office or one of lesser quality. The high-quality printer costs $45 000 and should last five years. The lesser quality printer costs $25 000 and should last two years. If the cost of capital for the company is 12 per cent, then what is the equivalent annual cost for the best choice for the company?
Jax Inc is considering the purchase of a new machine for the production of computers. Machine A costs $7,000,000 and will last for six years. Variable costs are 25% of sales, and fixed costs are $500,000 annually. Machine B costs $10,000,000 and will last for ten years. Variable costs for the machine are 15% of sales, and fixed costs are $750,000 annually. The sales for each machine will be $4,000,000 per year. The required rate of return is 9%, the tax rate is 21%, and both machines will be depreciated using straight-line depreciation with no salvage value. Calculate the equivalent annual annuity for Machine B. (Round to 2 decimals) What is the Net Present Value for Machine B? (round to 2 decimals)
A company is analyzing a proposed 3-year project using standard sensitivity analysis. The company expects to sell 15,000 units, \pm 5 percent. The expected variable cost per unit is $8 and the expected fixed costs are $ 40,000. The fixed and variable cost estimates are considered accurate within a \pm 7 percent range. The sales price is estimated at $15 a unit, \pm 6 percent. The project requires an initial investment of $120,000 for equipment that will be depreciated using the straight-line method to zero over the project's life. The equipment can be sold for $30,000 at the end of the project. The project requires $12,000 in net working capital for the three years but will be fully recovered when the project closes. The discount rate is 12.8 percent and tax rate is 20 percent. What is the net present value for the optimistic scenario? $92,058.28 $94, 075.71 $ 96,093.14 $98,110.57 $100, 128.00

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