ABC Corporation has hired you to evaluate a new FOUR year project for the firm. The project will require thepurchase of a $803,600.00 work cell. Further, it will cost the firm $57,900.00 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 $65,200.00. The project will also use a piece of equipment the firmalready owns. The equipment has been fully depreciated, but has a market value of $5,000.00. 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 $919,000.00 with expenses estimated at 39.00% of sales. Net workingcapital will be held constant throughout the project. The tax rate is 40.00%.The work cell is estimated to have a market value of $450,000.00 at the end of the fourth year. The firm expects toreclaim 83.00% of the final NWC position.The cost of capital is 12.00%.What is the terminal cash flow for the project?

Terminal cash flow is the final cash flow at the end of the project. It consists of the cash flow…

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

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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…
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You are evaluating two different silicon wafer milling machines. The Techron I costs $270,000, has a three - year life, and has pretax operating costs of $73, 000 per year. The Techron II costs $470,000, has a five-year life, and has pretax operating costs of $46, 000 per year. For both milling machines, use straight - line depreciation to zero over the project's life and assume a salvage value of $50,000. If your tax rate is 25 percent and your discount rate is 9 percent, compute the EAC for both machines.
You are evaluating two different silicon wafer milling machines. The Techron I costs $252,000, has a three-year life, and has pretax operating costs of $67,000 per year. The Techron Il costs $440,000, has a five-year life, and has pretax operating costs of $40,000 per year. For both milling machines, use straight-line depreciation to zero over the project's life and assume a salvage value of $44,000. If your tax rate is 24 percent and your discount rate is 9 percent, compute the EAC for both machines. Note: Your answer should be a negative value and indicated by a minus sign. Do not round intermediate calculations and round your answers to 2 decimal places, e.g., 32.16. Techron I Techron II $ -304,725.75 Which machine should you choose? O Techron I O Techron II
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You are evaluating two different silicon wafer milling machines. The Techron I costs $303,000, has a 3-year life, and has pretax operating costs of $84,000 per year. The Techron Il costs $525,000, has a 5-year life, and has pretax operating costs of $57,000 per year. For both milling machines, use straight-line depreciation to zero over the project's life and assume a salvage value of $61,000. If your tax rate is 25 percent and your discount rate is 13 percent, compute the EAC for both machines. (A negative answer should be Indicated by a minus sign. Do not round Intermediate calculations and round your answers to 2 decimal places, e.g., 32.16.) Techron I Techron II Which machine do you prefer? Techron I Techron II
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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
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