A store will cost $750,000 to open. Variable costs will be 38% of sales and fixed costs are $250,000 per year. The investment costs will be depreciated straight-line over the 19 year life of the store to a salvage value of zero. The opportunity cost of capital is 11% and the tax rate is 25%. Find the operating cash flow each year if sales revenue is $750,000 per year. Enter your response below. Correct response: 171, 118.42+ - 10Using an operating cash flow of 171, 118.42, calculate the Net Present Value. Should the store be opened? Enter your response for net present value below. 591, 447.64 Correct response: 591, 447.65 + 100 Find the net present value break - even level of sales revenue Enter your response below.

A store will cost $750,000 to open. Variable costs will be 38% of sales and fixed costs are $250,000 per year. The investment costs will be depreciated straight-line over the 19 year life of the store to a salvage value of zero. The opportunity cost of capital is 11% and the tax rate is 25%. Find the operating cash flow each year if sales revenue is $750,000 per year. Enter your response below. Correct response: 171, 118.42+ - 10Using an operating cash flow of 171, 118.42, calculate the Net Present Value. Should the store be opened? Enter your response for net present value below. 591, 447.64 Correct response: 591, 447.65 + 100 Find the net present value break - even level of sales revenue Enter your response below.

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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You have the opportunity to expand your business by purchasing new equipment for $152,000. The equipment has a useful life of 9 years. You expect to incur cash fixed costs of $79,000 per year to use this new equipment, and you expect to incur cash variable costs in the amount of 5% of annual revenues. Your cost of capital is 6%. Required: 1. Assume instead you expect a cash revenue stream for this investment. Based on this estimated revenue stream, Year 1 $ 105,000 Year 2 115,000 Year 3 110,000 Year 4 90,000 Year 5 160,000 Year 6 150,000 Year 7 160,000 Year 8 110,000 Year 9 160,000 What are the payback and discounted payback periods for this investment?
You are responsible to manage an IS project with a 4-year horizon. The annal cost of the project is estimated at $40,000 per year, and a one-time costs of $120,000. The annual monetary benefit of the project is estimated at $96,000 per year with a discount rate of 6 percent. a. Calculate the overall return on investment (ROI) of the project. b. Perform a break-even analysis (BEA). At what year does break-even occur?
Grady Precision Measurement Tools has forecasted the following sales and costs for a new GPS system: annual sales of 40,000 units at $21 a unit, production costs at 38% of sales price, annual fixed costs for production at $160,000, and straight-line depreciation expense of $210,000 per year. The company tax rate is 30%. What is the annual operating cash flow of the new GPS system?
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A mini-mart needs a new freezer and the initial investment will cost $310,000. Incremental revenues, including cost savings, are $198,000, and incremental expenses, including depreciation, are $125,000. There is no salvage value. What is the accounting rate of return (ARR)? How much must be invested now to receive $30,000 for 10 years if the first $30,000 is received one year from now and the rate is 8%?
The maintenance cost for an investment is $2000 per year for the first 10 years and $1000 per year, for the 10 years past the initial maintenance period. The salvage value of the investment is $15,000. Draw the cash flow and calculate the present value of costs and benefits if the rate of return is 5%.
A company is planning to invest $40,000 on a milling machine at year 0. The net cash flows generated from year 1 to year 6 is: $8000, and $10,000 equally in the following 5 years. The machine needs to be maintained at an annual cost of $2000. The machine has a 6-year service life and can be resold at the price at $6000 then. The MARR is 12%. (a) Draw the cash flow diagram. b) Determine the equivalent present and annual revenue of the machine.c) Determine the annual cost of owning the machine. d) Determine if this is a good investment using AE.
Compute the present value, P, for the following cash flows. You supervise an aging production line that constantly needs maintenance and new parts. Last month you spent $25,000 replacing a failed controller. Should the following plan be accepted if the interest rate is 15%? The net installed cost of the new line to replace the old line is $600,000 with a useful life of six years. In the first year its operating cost will be $100,000, and it will generate annual revenues of $300,000. Each year the operating cost will increase by $5000 and the revenues will fall by $15,000. After six years the equipment will have a value of $100,000 in the next re-building of the line.
Your company is analyzing purchase of a machine costing $5,900 today. The investment promises to add $18,500 to sales one year from today, $14,500 two years from today, and $18,000 three years from today. Incremental cash costs should consume 75% of the incremental sales. The tax rate is 30% and the company’s financing rate is 8.2%. The investment cost is depreciated to zero over a 3-year straight-line schedule. What is the IRR for the project?
Management is considering buying a pump that costs $20,000 and could save them $7,500 per year over the next 3 years in maintenance costs. If our desired rate of return on any investment is 14% per annum, should we make the investment? Present value of $1 Period 10% 12% 14% 1 0.909 0.893 0.877 0.826 0.797 0.769 3 0.751 0.712 0.675 4 0.683 0.636 0.592 5 0.621 0.567 0.519
You are thinking of making an investment in a new factory. The factory will generate revenues of $1,960,000 per year for as long as you maintain it. You expect that the maintenance costs will start at $90,160 per year and will increase 5% per year thereafter. Assume that all revenue and maintenance costs occur at the end of the year. You intend to run the factory as long as it continues to make a positive cash flow (as long as the cash generated by the plant exceeds the maintenance costs). The factory can be built and become operational immediately and the interest rate is 6% per year. a. What is the present value of the revenues? - b. What is the present value of the maintenance costs? c. If the plant costs $19,600,000 to build, should you invest in the factory? EIER

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