ABC Corporation has hired you to evaluate a new FOUR year project for the firm. The project will require thepurchase of a $784,500.00 work cell. Further, it will cost the firm $54,200.00 to get the work cell delivered andinstalled. The work cell will be straight-line depreciated to zero with a 20-year useful life. The project will requirenew employees to be trained at a cost of $59,200.00. The project will also use a piece of equipment the firmalready owns. The equipment has been fully depreciated, but has a market value of $5,700.00. Finally, the firm willinvest $10,700.00 in net working capital to ensure the project has sufficient resources to be successful.The project will generate annual sales of $901,000.00 with expenses estimated at 36.00% of sales. Net workingcapital will be held constant throughout the project. The tax rate is 38.00%.The work cell is estimated to have a market value of $494,000.00 at the end of the fourth year. The firm expects toreclaim 83.00% of the final NWC position.The cost of capital is 13.00%.What is the NPV the project if we end the project after 4 years?

NPV is also known as Net Present Value. It is a capital budgeting technique that helps in…

Answered: ABC Corporation has hired you to…

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

See similar textbooks

Similar questions

Hurzdan, Inc., is considering the purchase of a $410,000 computer with an economic life of five years. The computer will be fully depreciated over five years using the straight-line method. The market value of the computer will be $74,000 in five years. The computer will replace five office employees whose combined annual salaries are $119,000. The machine will also immediately lower the firm’s required net working capital by $94,000. This amount of net working capital will need to be replaced once the machine is sold. The corporate tax rate is 24 percent. The appropriate discount rate is 14 percent. Calculate the NPV of this project.
ABC Corporation has hired you to evaluate a new FOUR year project for the firm. The project will require the purchase of a $843,200.00 work cell. Further, it will cost the firm $51,700.00 to get the work cell delivered and installed. The work cell will be straight-line depreciated to zero with a 20-year useful life. The project will require new employees to be trained at a cost of $59,100.00. The project will also use a piece of equipment the firm already owns. The equipment has been fully depreciated, but has a market value of $5,200.00. Finally, the firm will invest $10,800.00 in net working capital to ensure the project has sufficient resources to be successful. The project will generate annual sales of $917,000.00 with expenses estimated at 38.00% of sales. Net working capital will be held constant throughout the project. The tax rate is 40.00%. The work cell is estimated to have a market value of $489,000.00 at the end of the fourth year. The firm expects to reclaim 85.00% of the…
Jones Excavation Company is planning an investment of $233,500 for a bulldozer. The bulldozer is expected to operate for 2,000 hours per year for eight years. Customers will be charged $120 per hour for bulldozer work. The bulldozer operator costs $37 per hour in wages and benefits. The bulldozer is expected to require annual maintenance costing $20,000. The bulldozer uses fuel that is expected to cost $48 per hour of bulldozer operation. Present Value of an Annuity of $1 at Compound Interest Year 6% 10% 12% 15% 20% 1 0.943 0.909 0.893 0.870 0.833 2 1.833 1.736 1.690 1.626 1.528 3 2.673 2.487 2.402 2.283 2.106 4 3.465 3.170 3.037 2.855 2.589 5 4.212 3.791 3.605 3.353 2.991 6 4.917 4.355 4.111 3.785 3.326 7 5.582 4.868 4.564 4.160 3.605 8 6.210 5.335 4.968 4.487 3.837 9 6.802 5.759 5.328 4.772 4.031 10 7.360 6.145 5.650 5.019 4.192
Gentry Machines. Inc .. has just received a special job order from one of itsclients. The following financial data on the order have been collected: This two-year project requires the purchase of a special-purpose piece of equipment for $55,000. The equipment falls into the MACRS five-year class. The machine will be sold at the end of two years for $27,000 (today's dollars). The project will bring in additional annual revenue of $114,000 (actual dollars), but it is expected to incur an additional annual operating cost of $53,800 (today's dollars). To purchase the equipment, the firm expects to borrow $50,000 at 10% over a two-year period (equal annual payments of $28,810 in actual dollars). The remaining $5,000 will be taken from the firm's retained earnings. The firm expects general inflation of 5% per year during the project period. The firm's marginal tax rate is 40%, and its market interest rate is 18%.(a) Compute the after-tax cash flows in actual dollars.(b) Whal is the…
A company in the region is planning for a new project that requires an investment in new machinery. The cost of machinery is RO 20,000. The total expenses to transport and install the machinery will be RO 5,000. Since the machinery uses the latest technology, it will result in a reduction of overall cost by RO 10,000. The company offers free maintenance for the machinery. Savings on account of the free maintenance will be RO 1,000 every year. The annual contract requires the company to pay RO 1,500 every year for vendor support. The total life of the project will be five years and it is expected that the machinery can be disposed at the end for 2,000. Straight-line depreciation is used by the company. The effective tax rate is 15%. Calculate Relevant Cash Flows for Capital Project 9050 9010 8765 9500
The Johnson Chemical Company has justreceived a special subcontracting job from one of itsclients. The two-year project requires the purchaseof a special-purpose painting sprayer of $60,000.This equipment falls into the MACRS five-yearclass. After the subcontracting work is completed,the painting sprayer will be sold at the end of twoyears for $40,000 (actual dollars). The painting system will require an increase of $5,000 in net working capital (for spare-parts inventory, such as spraynozzles). This investment in working capital will befully recovered after the project is terminated. Theproject will bring in an additional annual revenueof $120,000 (today’s dollars), but it is expected toincur an additional annual operating cost of $60,000(today’s dollars). It is projected that, due to inflation, sales prices will increase at an annual rate of5%. (This implies that annual revenues will increaseat an annual rate of 5%.) An annual increase of 4%for expenses and working-capital…
please asnwer correctly: Your company has been approached to bid on a contract to sell 5,000 voice recognition (VR) computer keyboards per year for four years. Due to technological improvements, beyond that time they will be outdated and no sales will be possible. The equipment necessary for the production will cost $3.4 million and will be depreciated on a straight-line basis to a zero salvage value. Production will require an investment in net working capital of $395,000 to be returned at the end of the project, and the equipment can be sold for $325,000 at the end of production. Fixed costs are $595,000 per year, and variable costs are $85 per unit. In addition to the contract, you feel your company can sell 12,300, 14,600, 19,200, and 11,600 additional units to companies in other countries over the next four years, respectively, at a price of $180. This price is fixed. The tax rate is 23 percent, and the required return is 10 percent. Additionally, the president of the company…
A company that sells has proposed to a small public utility company that it purchase a small electronics computer for $1,000,000 to replace ten calculating machines and their operators. An annual service maintenance contract for the computer will be provided at a cost of $100, 000 per year. One operator will be required at a salary of $110, 000 per year and one programmer at a salary of $160, 000. The estimated economical life of the computer is 10 years. The calculating machines costs $8,000 each when new, 5 years ago, and presently can be sold for $2,000 each. They have an estimated life of 8 years and an expected ultimate trade in value of $1, 000 each. Each calculating machine operator receives $85, 000 per year. Fringe Benefits for all labour cost 8% of annual salary. Annual maintenance cost on the calculating machine has been $500 each. Taxes and insurance on all equipment is 2% of the first cost per year. If capital costs the company about 25%, would you recommend the computer…
Briggs Excavation Company is planning an investment of $932,100 for a bulldozer. The bulldozer is expected to operate for 3,000 hours per year for eight years. Customers will be charged $140 per hour for bulldozer work. The bulldozer operator costs $32 per hour in wages and benefits. The bulldozer is expected to require annual maintenance costing $30,000. The bulldozer uses fuel that is expected to cost $42 per hour of bulldozer operation. Present Value of an Annuity of $1 at Compound Interest Year 6% 10% 12% 15% 20% 1 0.943 0.909 0.893 0.870 0.833 2 1.833 1.736 1.690 1.626 1.528 3 2.673 2.487 2.402 2.283 2.106 4 3.465 3.170 3.037 2.855 2.589 5 4.212 3.791 3.605 3.352 2.991 6 4.917 4.355 4.111 3.784 3.326 7 5.582 4.868 4.564 4.160 3.605 8 6.210 5.335 4.968 4.487 3.837 9 6.802 5.759 5.328 4.772 4.031 10 7.360 6.145 5.650 5.019 4.192 a. Determine the equal annual net cash flows from operating the bulldozer. Use a minus sign to indicate cash outflows.…
Martin Enterprises needs someone to supply it with 175,000 cartons of machine screws per year to support its manufacturing needs over the next five years, and you've decided to bid on the contract. It will cost $2,300,000 to install the equipment necessary to start production; you'll depreciate this cost straight-line to zero over the project's life. You estimate that, in five years, this equipment can be salvaged for $185,000. Your fixed production costs will be $670,000 per year, and your variable production costs should be $9.23 per carton. You also need an initial investment in net working capital of $340,000. If your tax rate is 25 percent and you require a 11 percent return on your investment, what bid price per carton should you submit? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.) Bid price
A construction company is evaluating the purchase of a new concrete mixer with hydraulic hopper and automatic controller. The mixer will have a first cost of BD 10,000, a life of 12 years, and no salvage value. It will require 3 operators at a cost of BD 4 per hour each. A total of one cubic meter of concrete can be poured each hour by the mixer. Alternatively, if human labor is used, 5 workers, each earning BD 5.500 per hour, are required to one cubic meter per hour. The estimated cost of the material is BD 28 per cubic meter and the MARR is 9% per year (clearly show the S.N., numeric answer, and final decision). a) Determine the minimum cubic meters per year to justify the purchase of the automatic mixer, b) The company expects to produce 120 cubic meters per year, which option should they select? Why?
Ovida company clinches a contract to supply cleaning services to a nursing home for the next 5 years. Under the contract, the company will be paid $1 million a year. To take up this contract, it would have to invest in new cleaning equipment costing $600,000 which will be depreciated straight-line to zero over 5 years. there is no salvage value at the end of 5 years. labour costs will be $300,000 per year and overheads $250,000 per year. the company will need to invest in net working capital of $350,000. it plans to issue $1 million worth of bonds for the next 5 years at a coupon rate of 6% and will price bonds at par. the company has an existing bank loan of $9 million. the cost of debt from a bank loan is the same as the bonds. the common stock of the company is selling for $10 per share and it has 2 million shares outstanding. expected dividend next year is $1 per share and dividends are expected to grow at 2% per annum. the tax rate is 20%. (a) compute the cost of equity b)…

SEE MORE QUESTIONS

Recommended textbooks for you

Essentials Of Investments

Finance

ISBN:

9781260013924

Author:

Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Publisher:

Mcgraw-hill Education,

FUNDAMENTALS OF CORPORATE FINANCE

Finance

ISBN:

9781260013962

Author:

BREALEY

Publisher:

RENT MCG

Financial Management: Theory & Practice

Finance

ISBN:

9781337909730

Author:

Brigham

Publisher:

Cengage

Essentials Of Investments

Finance

ISBN:

9781260013924

Author:

Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Publisher:

Mcgraw-hill Education,

FUNDAMENTALS OF CORPORATE FINANCE

Finance

ISBN:

9781260013962

Author:

BREALEY

Publisher:

RENT MCG

Financial Management: Theory & Practice

Finance

ISBN:

9781337909730

Author:

Brigham

Publisher:

Cengage

Foundations Of Finance

Finance

ISBN:

9780134897264

Author:

KEOWN, Arthur J., Martin, John D., PETTY, J. William

Publisher:

Pearson,

Fundamentals of Financial Management (MindTap Cou…

Finance

ISBN:

9781337395250

Author:

Eugene F. Brigham, Joel F. Houston

Publisher:

Cengage Learning

Corporate Finance (The Mcgraw-hill/Irwin Series i…

Finance

ISBN:

9780077861759

Author:

Stephen A. Ross Franco Modigliani Professor of Financial Economics Professor, Randolph W Westerfield Robert R. Dockson Deans Chair in Bus. Admin., Jeffrey Jaffe, Bradford D Jordan Professor

Publisher:

McGraw-Hill Education

SEE MORE TEXTBOOKS