A project requires the purchase of machinery for $40,000. The machinery belongs in a 20% CCA class andwill have a salvage value of $4,000 at the end of the 4 year project. It will require a net working capitalInvestment of $2,000 up-front, and the net working capital is recovered at the end of the project. The firm hasa tax rate of 35% and a required return of 10%. The project generates annual before-tax sales less cash costsequal to $15,000 in each of years 1 to 4. What is the project's NPV?Multiple Choice$2,124$8,272$1,1695881$2.942

NPV is the value added by a project and can be found in the difference between the present value of…

Answered: A project requires the purchase of…

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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Quad Enterprises is considering a new three-year expansion project that requires an initial fixed asset investment of $2.9 million. The fixed asset will be depreciated straight-line to zero over its three year tax life, after which time it will be worthless. The project is estimated to generate $2,190,000 in annual sales, with costs of $815,000. The tax rate is 35%. What is the NPV of the project if the required rate of return is 12% O $47,523 O $59,255 O $68.991 O $52.648
The Rodriguez Company is considering an average-risk investment in a mineral water spring project that has an initial after-tax cost of $140,000. The project will produce 800 cases of mineral water per year indefinitely, starting at Year 1. The Year-1 sales price will be $133 per case, and the Year-1 cost per case will be $106. The firm is taxed at a rate of 25%. Both prices and costs are expected to rise after Year 1 at a rate of 4% per year due to inflation. The firm uses only equity, and it has a cost of capital of 15%. Assume that cash flows consist only of after-tax profits because the spring has an indefinite life and will not be depreciated. What is the present value of future cash flows? (Hint: The project is a growing perpetuity, so you must use the constant growth formula to find its NPV.) What is the NPV? Do not round intermediate calculations. Round your answers to the nearest dollar. Negative values, if any, should be indicated by a minus sign. PV of future CFs: $ NPV: $…
Your Company is considering a new project that will require $2,000,000 of new equipment at the start of the project. The equipment will have a depreciable life of 10 years and will be depreciated to a book value of $250,000 using straight-line depreciation. The cost of capital is 12%, and the firm's tax rate is 21%. Estimate the present value of the tax benefits from depreciation. Multiple Choice A. $68,250 B. $207,646 C. $175,000 D. $988,789
You are evaluating a new project that costs $15 million over its 5-year life. Depreciation is straight-line to zero over the life of the project and the salvage value is zero. The project is expected to have the following base case estimates: Unit sales/year: 250,000; Price/unit: $40; VC/unit: $15; FC/year: $900,000. The required return is 14 % and the corporate tax rate is 30%. The firm has no debt. The base case NPV is $946,661.1003. Calculate the sensitivity of the NPV to changes to changes in variable costs/unit
A project requires the purchase of machinery for $40.000 The machinery belongs in a 20% CCA class and will have a salvage value of $4,000 at the end of the 4 year project. It will require a net working capital investment of $2,000 up-front, and the net working capital is recovered at the end of the project. The firm has a tax rate of 35% and a required return of 10%. The project generates annual before-tax sales less cash costs equal to $15,000 in each of years 1 to 4. What is the project's NPV? Multiple Choice O O O O $2124 $8.272 $881 $1169
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?
Laurel's Lawn Care Ltd., has a new mower line that can generate revenues of $174,000 per year. Direct production costs are $58,000, and the fixed costs of maintaining the lawn mower factory are $24,000 a year. The factory originally cost $1.45 million and is being depreciated for tax purposes over 25 years using straight-line depreciation. Calculate the operating cash flows of the project if the firm's tax bracket is 25%. (Enter your answer in dollars not in millions.) Operating cash flows
A project requires the purchase of machinery for $40,000. The machinery belongs in a 20% CCA class and will have a salvage value of $4,000 at the end of the 4-year project. It will require a net working capital investment of $5,000 up-front. The firm has a tax rate of 34% and a required return of 10%. The ete t of project generates after-tax operating income of $10,001. What is the project's NPV? Select one: a. -$2,724 b. $1,393 C. $2,394 d. $2,942 e. $881 Check
A corporation is considering purchasing a machine that will save $150,000 per year before taxes. The cost of operating the machine (including maintenance) is $30,000 per year. The machine will be needed for five years, after which it will have a zero salvage value. MACRS depreciation will be used, assuming a three-year class life. The marginal income tax rate is 25%. If the firm wants 15% return on investment after taxes, how much can it afford to pay for this machine? Click the icon to view the MACRS depreciation schedules Click the icon to view the interest factors for discrete compounding when /- 15% per year. If the firm wants 15% return on investment after taxes, it can afford to pay thousand for this machine. (Round to one decimal place.)
Sun Brite has a new pair of sunglasses it is evaluating. The company expects to sell 5, 700 pairs of sunglasses at a price of $ 152 each and a variable cost of $104 each. The equipment necessary for the project will cost $300,000 and will be depreciated on a straight-line basis over the 9-year life of the project. Fixed costs are $180,000 per year and the tax rate is 21 percent. How sensitive is the operating cash flow to a $1 increase in variable costs per pairs of sunglasses? Multiple Choice -$4,117 -S3, 335 -$4, 503 S3, 705 $3,335
Land Development Corporation is considering the purchase of a bulldozer. The bulldozer will cost $100,000 and will have an estimated salvage value of $30,000 at the end of six years. The asset will generate annual before-tax revenues of $80,000 over the next six years. The asset is classified as a five-year MACRS property. The marginal tax rate is 40%, and the firm's market interest rate is known to be 18%. All dollar figures represent constant dollars at time zero and are responsive to the general inflation rate J.(a) With 1=6% compute the after-tax cash flows in actual dollars.(b) Determine the real rate of return of this project on an after-tax basis.(c) Suppose that the initial cost of the project will be financed through a local bank at an interest rate of 12% and with an annual payment of $24,323 over six years. With this additional condition, the rework part (a).(d) From your answer to part (a), determine the PW loss due to inflation.(e) From your answer to part (c), determine…
Marie's Fashions is considering a.9 project that will require $ 39,000 in net working capital and $ 68,000 in fixed assets. The project is expected to produce annual sales of $ 73, 000 with associated cash costs of $ 42,500. The project has a four- year life. The company uses straight line depreciation to a zero book value over the life of the project. Ignore bonus depreciation . The tax rate is 25 percent. What is the operating cash flow for this ? project

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