A project requires an initial investment of $150,000, to be depreciated straight-line over 3years to an expected salvage value of $0. In addition, working capital will increase duringthe life of the project and amount to 20% of next year's revenues, with the investment inworking capital to be made at the beginning of each year. The project will generate$150,000 additional annual revenues and $85,000 additional annual expenses. The taxrate is 25%. Cost of capital amount to 7,5%. Please calculate the Net Present Value ofthe project and show your calculations. Would you recommend the investment? Pleaseexplain your advice.

Given Data: Project cost $1,50,000.00 Life(years) 3 Revenue $1,50,000.00 Expenses $ 85,000…

Answered: A project requires an initial…

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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salvage value of the project is estimated to be $ million (the value of the land). The project's life is years and the annual operating expenses are estimated to be $ million. The MARR for such projects is % per year. What must the minimum annual revenue be to make the shopping center a worthwhile venture?
A 5-year project is expected to provide annual sales of $237,000 with costs of $99,500. The equipment necessary for the project will cost $380,000 and will be depreciated on a straight-line method over the life of the project. You feel that both sales and costs are accurate to +-15 percent. The tax rate is 21 percent. What is the annual operating cash flow for the worst-case scenario? Multiple Choice $143,185 $52,215 $105,590 $65,210 $84,710
Kansas Corporation is reviewing an investment proposal that has an initial cost of $54,000. An estimate of the investment's end-of- year book value, the yearly after-tax net cash inflows, and the yearly net income are presented in the schedule below. Yearly after-tax net cash inflows include savings from the depreciation tax shield. The investment's salvage value at the end of each year is equal to book value, and there will be no salvage value at the end of the investment's life. $35,500 Yearly After-Tax Net cash Inflows Initial Cost and Year 1 Book Value $20,500 2 21,500 18,000 3 11,000 15,500 4 4,000 13,000 5 0 10,500 $77,500 Yearly Net Income $ 3,000 4,000 5,000 6,000 7,000 $25,000 Kansas uses a 12% after-tax target rate of return for new investment proposals. FV of $1 at FV of an ordinary PV of $1 at PV of an ordinary 1123456 Year - 12% annuity at 12% 12% annuity at 12% 1.120 1.000 0.893 0.893 1.254 2.120 0.797 1.690 1.405 3.374 0.712 2.402 1.574 4.779 0.636 3.037 1.762 6.353…
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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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