A start-up biotech company is considering making an investment of $100,000 in a new filtration system. The associated estimates are summarized below: Annual receipts $75,000 Annual expenses $45,000 Useful life 8 years Terminal book value (EOY 8) $20,000 Terminal market value $0 Straight-line depreciation will be used, and the effective income tax rate is 20%. The after-tax MARR is 15% per year. Determine whether this investment is an attractive option for the company. a. Using SL method and SV of $20k What is the MV at end of year 5? b. What is the PW of the investment?

A start-up biotech company is considering making an investment of $100,000 in a new filtration system. The associated estimates are summarized below: Annual receipts $75,000 Annual expenses $45,000 Useful life 8 years Terminal book value (EOY 8) $20,000 Terminal market value $0 Straight-line depreciation will be used, and the effective income tax rate is 20%. The after-tax MARR is 15% per year. Determine whether this investment is an attractive option for the company. a. Using SL method and SV of $20k What is the MV at end of year 5? b. What is the PW of the investment?

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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Concose Park Department is considering a new capital investment. The cost of the machine is $230,000. The annual cost savings if the new machine is acquired will be $105,000. The machine will have a 5-year life and the terminal disposal value is expected to be $38,000. There are no tax consequences related to this decision. If Concose Park Department has a required rate of return of 16%, which of the following is closest to the present value of the project? A. $131,858 B. $145,662 C. $31,892 D. $113,770
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Concose Park Department is considering a new capital investment. The cost of the machine is $280,000. The annual cost savings if the new machine is acquired will be $165,000. The machine will have a 3-year life and the terminal disposal value is expected to be $35,000. There are no tax consequences related to this decision. If Concose Park Department has a required rate of return of 14%, what is the present value of the project?

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