A project of providing electric scooters in an area has an initial cost of $400,000. The e-scooter service is planned for 5 years. The annual maintenance costs are estimated at$40,000 annually and expected to increase $5,000 every year throughout the projectplanning time. An infrastructure maintenance will be required at the end of year 2, whichis estimated to cost $50,000. The e-scooter system will generate revenue of $100,000 peryear for 5 years and then it will be sold after the final annual maintenance. The salvagevalue of the remaining assets at the end of the project will be $50,000.Draw the cash flow diagram. Assume "end-of-period" cash flows.

Cash flow diagram is pictorial representation of cash inflows and outflows of a project.

Answered: A project of providing electric…

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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Atlantic Manufacturing is considering a new investment project that will last for four years. The delivered and installed cost of the machine needed for the project is $23,957 and it will be depreciated according to the three-year MACRS schedule. The project also requires an initial increase in net working capital of $300. Financial projections for sales and costs are in the table below. In addition, since sales are expected to fluctuate, NWC requirements will also fluctuate. The end-of- year NWC requirements are included below (hint: these NWC capital requirements DO NOT represent the change in NWC for the period). The $0 requirement for NWC at the end of year 4 means that all NWC is recovered by the end of the project. The corporate tax rate is 35% and the required return on the project is 12%. Year 1 2 3 4 Sales $11,653 $12,746 $13,973 $10,638 Costs 2,322 2,536 3,456 1,434 NWC 324 352 231 0 Requirements What is the project's NPV? (Round answer to O decimal places. Do not round…
A new solid waste treatment plant is to be constructed in Washington County. The initial installation will cost $35 million (M). After 10 years, minor repair and renovation (R&R) will occur at a cost of $14M will be required; after 20 years, a major R&R costing $20M will be required. The investment pattern will repeat every 20 years. Each year during the 20-year period, operating and maintenance (O&M) costs will occur. The first year, O&M costs will total $2M. Thereafter, O&M costs will increase at a compound rate of 4% per year. Based on a 4% MARR, what is the capitalized cost for the solid waste treatment plant?
A regional municipality is studying a water supply plan for its tri-city and surrounding area to the end of year 2080. To satisfy the water demand, one suggestion is to construct a pipeline from a major lake some distance away. Construction would start at the beginning of 2030 and take five years at a cost of $15 million per year. The cost of maintenance and repairs starts after completion of construction and for the first year is $2 million, increasing by 2 percent per year thereafter. At an interest rate of 8 percent, what is the present worth of this project? Assume all cash flows take place at year-end. Consider the present to be the end of 2025/beginning of 2026. Assume there is no salvage value at the end of year 2080.
A newly constructed water treatment facility costs $2 million. It is estimated that the facility will need revamping to maintain the original design specification every 30 years at a cost of $1 million. Annual repairs and maintenance costs are estimated to be $100,000. At an interest rate of 8%, determine the capitalized cost of the facility, assuming that it will be used for an indefinite period.
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Temporary Housing Services Incorporated (THSI) is considering a project that involves setting up a temporary housing facility in an area recently damaged by a hurricane. THSI will lease space in this facility to various agencies and groups providing relief services to the area. THSI estimates that this project will initially cost $4 million to set up and will generate $20 million in revenues during its first and only year in operation (paid in one year). Operating expenses are expected to total $8 million during this year and depreciation expense will be another $2 million. THSI will require no working capital for this investment. THSI's tax-rate is 20% Assume that THSI's cost of capital for this project is 15%. The net present value (NPV) of this temporary housing project is closest to:
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A regional municipality is studying a water supply plan for its tri-city and surrounding area to the end of year 2070.To satisfy the water demand, one suggestion is to construct a pipeline from a major lake some distance away. Construction would start at the beginning of 2030 and take fivefive years at a cost of $15 million per year. The cost of maintenance and repairs starts after completion of construction and for the first year is $2 million, increasing by 1 percent per year thereafter. At an interest rate of 6 percent, what is the present worth of this project? Assume all cash flows take place at year-end. Consider the present to be the end of 2025/beginning of 2026. Assume there is no salvage value at the end of year 2070. The present worth of this project is how many million. (2 decimal places)
The proposed capital project calls for the Manufacturing Department to fully automate a production facility using one of two different advanced robotics systems. System A will incur development costs of $175,500. System B will cost $650,000 to develop. Both systems will be capitalized and amortized using a CCA rate of 10%. In addition, the firm believes that Net Working Capital will rise by $95,000 at time zero and then by an additional $9,000 at the end of each year for each year that the new system is operating (except at the end of the final year of the project). This applies to both alternatives. However, all of the increase in Net Working Capital will be recovered at the end of the project.If the new automated robotics system is put into use, the pre-tax cost savings each year are estimated as follows:Table 1Year System A System B1 $60,000 $350,0002 $50,000 $220,0003 $50,000 $240,0004 $50,000 $260,0005 $25,000 $280,000 As the financial analyst, you are required to draft a…
A local municipality is considering investing $220,000 to upgrade a park. Based on similar investments made by similar cities, it is anticipated the investment will result in annual costs and annual benefits over a 7-year period as shownin the cash flow profhle given below in thousands of dollars. Notice, an intermediate investment of $140,000 is anticipated in the 6th year of the investment. Based on a MARR of 5%, calculate the benefit-cost ratio of the investment. Round answer to two decimal places. (All values in thousand dollars) End-of Year Costs Benefits Net Cash Flow $220 -$220 $70 $120 $50 $70 $130 $60 $70 $140 $70 4 $70 $150 $80 $70 $160 $90 $210 $170 -$40 7. $70 $160 $90 1.45 2. in
The department of transport will collect 5$ toll from each vehicle to recover the cost of a newly- built highway. In the first year (end of year 1), 10,000 cars are expected to use the highway followed by 4% annual increase in traffic due to the expansion of the city. Determine the equivalent present worth of this project over 20 years' time and at an interest rate of 8%?
Temporary Housing Services Incorporated (THSI) is considering a project that involves setting up a temporary housing facility in an area recently damaged by a hurricane. THSI will lease space in this facility to various agencies and groups providing relief services to the area. THSI estimates that this project will initially cost $4.87 million to setup and will generate $20 million in revenues during its first and only year in operation (paid in one year). Operating expenses are expected to total $12 million during this year and depreciation expense will be another $3 million. THSI will require no working capital for this investment. THSI's marginal tax rate is 35%. Assume that THSI's cost of capital is 14.6% p.a. Compute the NPV of the temporary housing facility to the nearest dollar

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