A university student painter is considering the purchase of a new air compressor and paint gun to replace an old paint sprayer (Both items belong to Class 9 and have a 25% CCA rate) These two new items cost $13,000 and have a useful life of four years, at which time they can be sold for $2.600 The old paint sprayer can be sold now for $600 and could be scrapped for $350 in four years. The entrepreneurial student believes that operating revenues will increase annually by $9,000. The tax rate is 22% and the required rate of return is 15% What is the NPV of the new equipment? (Do not round intermediate calculations. Round the final answer to 2 decimal places. Omit $ sign in your response.) NPV Should the purchase be made? Yes O No

A university student painter is considering the purchase of a new air compressor and paint gun to replace an old paint sprayer (Both items belong to Class 9 and have a 25% CCA rate) These two new items cost $13,000 and have a useful life of four years, at which time they can be sold for $2.600 The old paint sprayer can be sold now for $600 and could be scrapped for $350 in four years. The entrepreneurial student believes that operating revenues will increase annually by $9,000. The tax rate is 22% and the required rate of return is 15% What is the NPV of the new equipment? (Do not round intermediate calculations. Round the final answer to 2 decimal places. Omit $ sign in your response.) NPV Should the purchase be made? Yes O No

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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3. Your favorite neighbor Poindexter learns you are pursuing an MBA and seeks your advice on how to finance his next vehicle. He has gathered information about each option but is not sure how to compare the alternatives. Purchasing a new vehicle will cost $26,500, and he expects to spend about $500 per year in maintenance costs. He would keep the vehicle for five years and estimates that the salvage value will be $10,500. Alternatively, Poindexter could lease the same vehicle for five years at a cost of $5,000 per year, including all maintenance. The lease payments are made at the beginning of each year. Assume a discount rate of 10%. o Provide an analysis for Poindexter at 10%. o Provide the same analysis for good old Poindexter assuming a rate of 5%. At what rate will he be indifferent? o
Pharoah Corp. is thinking about opening a soccer camp in southern California. To start the camp, Pharoah would need to purchase land and build four soccer fields and a sleeping and dining facility to house 150 soccer players. Each year, the camp would be run for 8 sessions of 1 week each. The company would hire college soccer players as coaches. The camp attendees would be male and female soccer players ages 12-18. Property values in southern California have enjoyed a steady increase in value. It is expected that after using the facility for 20 years, Pharoah can sell the property for more than it was originally purchased for. The following amounts have been estimated. Cost of land Cost to build soccer fields, dorm, and dining facility Annual cash inflows assuming 150 players and 8 weeks Annual cash outflows Estimated useful life Salvage value Discount rate Click here to view the factor table. (a) Net present value $ $318,000 $636,000 $975,200 $890,400 Should the project be accepted?…
Following the last question - John is evaluating the idea to open an ice cream shop on a piece of land. The followings are what he might include in the cash flows: Instead, John can earn $120,000 if he decides to sell the land today. He bought this land for $350,000 two years ago. • Outfitting the space for an ice cream shop would require a capital expenditure of $150,000 today. It'll require an investment of $30,000 in inventories for making the ice creams today. What are the opportunity costs of opening the ice cream shop? 1 · . -$120,000 O-$180,000 O-$350,000 O-$270,000 4
The answers are provided, but need help discovering how to get them.
1. Aero Motorcycles is considering opening a new manufacturing facility in Fort Worth to meet the demand for a new line of solar-charged motorcycles (who wants to ride on a cloudy day anyway?) The proposed project has the following features; • The firm just spent $300,000 for a marketing study to determine consumer demand (@ t=0). • Aero Motorcycles purchased the land the factory will be built on 5 years ago for $2,000,000 and owns it outright (that is, it does not have a mortgage). The land has a current market value of $2,600,000. • The project has an initial cost of $20,000,000 (excluding land, hint: the land is not subject to depreciation). • If the project is undertaken, at t = 0 the company will need to increase its inventories by $3,500,000, accounts receivable by $1,500,000, and its accounts payable by $2,000,000. This net operating working capital will be recovered at the end of the project’s life (t = 10). • If the project is undertaken, the company…
Robert Trails Senior Living Community is considering investing in solar panels to save on utility costs. The initial cost of the panels, including installation, is $241,000. The expected reduction in utility costs are noted below. Utility costs savings for the next five years are: (Round factor values to 5 decimal places, e.g. 1.25124 and final answer to 0 decimal places, e.g. 458,581.) Click here to view factor tables Year 1: Year 2: Year 3: Year 4: Year 5: $66,000 $68,100 $72,900 $76,200 $78,700 The current interest rate used to evaluate investment decisions is 6%. The inflation rate is expected to remain constant at 3% for the entire period. (a) * Your answer is incorrect. Compute the present value of the expected cash flows (savings). Present Value of Expected Cash Flows $ 303248
Calculate the NPV based upon the following facts: Bob has just completed the development of a better face shield for health workers. The new product is expected to produce annual revenues of $230,000. Bob requires an investment in an advanced 3D Printer costing $30,000. The project has an expected life of 5 years. The 3D printer will have a $20,000 salvage value at the end of 5 years. Working capital is expected to increase by $80,000 which Bob will recover at the end of the products life cycle. Annual operating expenses are estimated at $200,000. The required rate of return is 4%.
Assume you currently work for the city of Edmonton in their traffic safety department. It is estimated that you could reduce fatality risk by 3% at a particular intersection if you upgrade the traffic lights to use new high visibility LEDs. The cost of this upgrade is estimated to be $400,000. If we assume a human life is worth 10 million, should you spend the money to upgrade the traffic lights? (Hint: to multiply 1% by 200 you follow this process: 0.01 x 200 = 2). a No, since the expected benefit ($300,000) is lower than the cost. b Yes, since the expected benefit ($400,000) is equal to the cost. c Yes, since the expected benefit ($200,000) is greater than the cost. d No, since the expected benefit ($100,000) is lower than the cost.
A careful buyer is deciding whether to buy artificial Christmas trees or continue cutting down trees. The artificial tree costs him $34 and he can use it for 8 years after which it is thrown away as garbage. The other alternative is to continue cutting trees at a cost of $8 today, $9 next year, $10 the next year and so on during those same 8 years. If he buys the artificial tree, what is the return on investment?
Marcus is considering a purchase of a new Toyota that costs $20,000 at a local dealership. Marcus estimates the annual cost of maintenance, registration, insurance, and gas to be about $1,500. After extensive internet research, Marcus estimates that he can sell his Toyota in three years for $10,000. What is Marcus's estimated cost of owning and driving the car for three years? $20,000 3 x $1,500+$20,000-$24,500 3x $1,500+$20,000 $10,000 $14,500 $20,000 $10,000 = $10,000
You recently inherited $10,000 that you are planning to use for a down-payment on a house in 3 years. You considering using those funds in the meantime to purchase new solar panels for your current home, with the hope that you can earn the $10,000 back by the time 3 years comes around for use as the down-payment on the new house. The manufacturer promises the panels will save $4000 per year in gas and electric costs. If you can expect i = 12%, should this equipment be purchased (ie. will you have received your money back in 3 years)?
A farmer in Vancouver faces a dilemma. The weather forecast is for hot weather, and there is a 50% chance that the temperature this weekend will be too hot and destroy his entire flower garden, which is worth some $60,000. He can take two possible actions to try to alleviate his loss if the temperature rises (the objective is to maximize his expected flower value). First, he could use mulch which helps keep soil temperatures low. This would cost $3,000, but he could still expect to incur damage of approximately $27,000 to $32,000. Second, he can use shade cloth which offers partial and temporary protection from the sun. This method is more expensive ($6,000), and also more effective. With the shade cloth, he could expect to incur as much as $16,000 to $22,000 of the loss. Compare the farmers expected values for the three alternatives he has, considering the various possible loss scenarios for the mulch and the shade cloth. Which alternative would you suggest the farmer take? Why?…

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