A project with a life of 6 years is expected to provide annual sales of $260,000 and costs of $173,000. The project will require an investment in equipment of $490,000, which 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 best-case scenario?

A project with a life of 6 years is expected to provide annual sales of $260,000 and costs of $173,000. The project will require an investment in equipment of $490,000, which 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 best-case scenario?

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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A project is expected to create operating cash flows of $25,300 a year for four years. The fixed assets required for the project cost $60,000 and will be worthless at the end of the project. An additional $3,000 of net working capital will be required when the project starts and will be fully recovered at the end of the project. What is the project's net present value if the required rate of return is 12 percent? O $14,028.18 O $15.751.49 O $16,954.17 O $17,396.31
A 6-year project is expected to generate annual sales of 10,100 units at a price of $88 per unit and a variable cost of $59 per unit. The equipment necessary for the project will cost $413,000 and will be depreciated on a straight-line basis over the life of the project. Fixed costs are $250,000 per year and the tax rate is 21 percent. How sensitive is the operating cash flow to a $1 change in the per unit sales price? Multiple Choice O $5,172 $4,897 $5,448 $7,979 $5,999
A 7-year project is expected to provide annual sales of $201,000 with costs of $95,000. The equipment necessary for the project will cost $335,000 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 +/-10 percent. The tax rate is 40 percent. What is the annual operating cash flow for the worst-case scenario? Multiple Choice $45,840 $100,503 $49,703 $64,983 $73,383
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
A 7-year project is expected to generate annual sales of 10,200 units at a price of $89 per unit and a variable cost of $60 per unit. The equipment necessary for the project will cost $421,000 and will be depreciated on a straight-line basis over the life of the project. Fixed costs are $255,000 per year and the tax rate is 23 percent. How sensitive is the operating cash flow to a $1 change in the per unit sales price? Multiple Choice $7,854 $6,116 O $6,433 O $7,069 $5,798
A 5-year project is expected to generate annual sales of 8,400 units at a price of $71 per unit and a variable cost of $42 per unit. The equipment necessary for the project will cost $277,000 and will be depreciated on a straight-line basis over the life of the project. Fixed costs are $165,000 per year and the tax rate is 21 percent. How sensitive is the operating cash flow to a $1 change in the per unit sales price? Multiple Choice о O $4,914 $6,636 $3,598 $4,037 $3,159
A 7-year project is expected to provide annual sales of $221,000 with costs of $97,500. The equipment necessary for the project will cost $360,000 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 35 percent. What is the annual operating cash flow for the worst-case scenario?
METL is evaluating a project projected to have a 7-year life. The initial investment of $4.2 million will be depreciated to zero using straight-line over the project life. The project is expected to create incremental sales of $2.4 million per year and incremental expenses of $1.4 million per year. What is the incremental after-tax operating cash flow (OCF) associated with this project if METL's tax rate is 32%? Enter answer in dollars, rounded to the nearest dollar.
A proposed new project has projected sales of $244,500, costs of $123,100, and depreciation of $15,100. The tax rate is 21%. What is the operating cash flow of this project?
Blink of an Eye Company is evaluating a 5-year project that will provide cash flows of $39,300, $80,430, $63,170, $61,250, and $44,470, respectively. The project has an initial cost of $182,560 and the required return is 8.8 percent. What is the project's NPV?
Harper Electronics is considering investing in manufacturing equipment expected to cost $250,000. The equipment has an estimated useful life of four years and a salvage value of $25,000. It is expected to produce incremental cash revenues of $125,000 per year. Harper has an effective income tax rate of 30 percent and a desired rate of return of 10 percent. (PV of $1 and PVA of $1) (Use appropriate factor(s) from the tables provided.) Required a. Determine the net present value and the present value index of the investment, assuming that Harper uses straight-line depreciation for financial and income tax reporting. b. Determine the net present value and the present value index of the investment, assuming that Harper uses double-declining- balance depreciation for financial and income tax reporting. d. Determine the payback period and unadjusted rate of return (use average investment), assuming that Harper uses straight-line depreciation. e. Determine the payback period and unadjusted…
Peng Company is considering buying a machine that will yield income of $2,400 and net cash flow of $16,000 per year for three years. The machine costs $48,900 and has an estimated $8,100 salvage value. Compute the accounting rate of return for this investment. Numerator: Accounting Rate of Return Denominator: = Accounting Rate of Return Accounting rate of return

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