A utility company is considering the following plans to provide a certain service required by present demand and the prospective growth of demand for the coming 18 years. Plan Q requires an immediate investment of P500,000 in property that has an estimated life of 18 years and with 20% terminal salvage value. Annual disbursements for operation and maintenance will be P50,000. Annual property taxes will be 2% of the first cost. Plan R requires an immediate investment of P600,000 in property that has an estimated life of 18 years and with 25% terminal salvage value. Annual disbursements for operation and maintenance will be P35,000. Annual property taxes will be 1.5% of the first cost. Plan S requires an immediate investment of P300,000 in property that has an estimated life of 18 years with 20% terminal salvage value. Annual disbursements for its operation and maintenance will be P40,000. Annual property taxes will be 2% of the first cost of property in service at any time. Money is worth 12%. What would you recommend? Use Future Worth Cost Method.

A utility company is considering the following plans to provide a certain service required by present demand and the prospective growth of demand for the coming 18 years. Plan Q requires an immediate investment of P500,000 in property that has an estimated life of 18 years and with 20% terminal salvage value. Annual disbursements for operation and maintenance will be P50,000. Annual property taxes will be 2% of the first cost. Plan R requires an immediate investment of P600,000 in property that has an estimated life of 18 years and with 25% terminal salvage value. Annual disbursements for operation and maintenance will be P35,000. Annual property taxes will be 1.5% of the first cost. Plan S requires an immediate investment of P300,000 in property that has an estimated life of 18 years with 20% terminal salvage value. Annual disbursements for its operation and maintenance will be P40,000. Annual property taxes will be 2% of the first cost of property in service at any time. Money is worth 12%. What would you recommend? Use Future Worth Cost Method.

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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Calculate the capitalized cost of a project with a P3,000,000 beginning cost and an extra P850,000 investment cost at the end of every ten years. For the first five years, the yearly running cost will be P100,000 at the end of each year, rising to P160,000 after that. In addition, a recurring significant rework cost of P300,000 is estimated every 13 years. Assume that i=15%. P4,281,935 P4,331,654 P4,202,388 P4,252,105
A project requires a $2,880,000 initial investment for new machinery with a five-year life and a salvage value of $316,000. The project is expected to yield annual income of $207,740 per year and net cash flows of $708,000 per year for the next five years. The project's accounting rate of return is: Multiple Choice 23.9%. 6.8%. 13.0%. 19.8%. 47.0%.
A company is considering a new 6-year project that will have annual sales of $234,000 and costs of $146,000. The project will require fixed assets of $265,000, which will be depreciated on a 5-year MACRS schedule. The annual depreciation percentages are 20.00 percent, 32.00 percent, 19.20 percent, 11.52 percent, 11.52 percent, and 5.76 percent, respectively. The company has a tax rate of 34 percent. What is the operating cash flow for Year 2? a. 68460 b. 86912 c. 58752 d. 73097 e. 75379
DUB company is considering a new 3-year expansion project that requires an initial fixed asset investment of $2.29 million. The fixed asset falls into the 3-year MACRS class. The project is estimated to generate $1,810,000 in annual sales, with costs of $700,000. The project requires an initial investment in net working capital of $450,000, and the fixed asset will have a market value of $480,000 at the end of the project. a. If the tax rate is 25 percent, what is the project’s Year 0 net cash flow? Year 1? Year 2? Year 3? (Do not round intermediate calculations) b. If the required return is 12%, what is the projects NPV? Please use excel and show equations.
Quad Enterprises is considering a new 3-year expansion project that requires an initial fixed asset investment of $1.9 million. The fixed asset falls into the 3-year MACRS class (MACRS Table) and will have a market value of $151,200 after 3 years. The project requires an initial investment in net working capital of $216,000. The project is estimated to generate $1,728,000 in annual sales, with costs of $691,200. The tax rate is 23 percent and the required return on the project is 17 percent. What is the project's year 0 net cash flow? What is the project's year 1 net cash flow? What is the project's year 2 net cash flow? What is the project's year 3 net cash flow?
A newly constructed water treatment facility costs $2 million. It is estimated that the facility will need revamping to maintain the original design specification every 30 years at a cost of $1 million. Annual repairs and maintenance costs are estimated to be $100,000. At an interest rate of 8%, determine the capitalized cost of the facility, assuming that it will be used for an indefinite period.
6. An elective project is currently under review. One alternative requires an initial investment of $116,000 for equipment. The profit is expected to be $28,000 each year, over the 6-year project period. The salvage value of the equipment at the end of the project period is projected to be $22,000. A second alternative requires an initial investment of $60,000 for equipment. The profit is projected to be $16,000 each year, over the 6-year project period. The salvage value of the equipment at the end of the project period is projected to be $14,000. The IRR of this alternative is 18.69%. Determine which alternative is preferred using the appropriate IRR method. Assume a MARR of 10%. Justify your recommendation, based on this method.
Please show all your work
The initial investment in machinery would be $8 million immediately and the project is expected to last for three years. Investment in machinery receives tax allowable depreciation of 25% per annum on a straight-line basis. Allowances are receivable one year in arrears. The machinery will be sold at the end of the project for $5 million, in year 3 prices. And the answer is in the picture. How to calculate the answer of Tax Allowable depreciation?
A proposed cost-saving device has an installed cost of $765,000. The device will be used in a five-year project but is classified as three-year MACRS property for tax purposes (MACRS schedule). The required initial net working capital investment is $67,000, the tax rate is 21 percent, and the project discount rate is 9 percent. The device has an estimated Year 5 salvage value of $103,000. What level of pretax cost savings do we require for this project to be profitable? Note: Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16. Pretax cost savings
A proposed cost-saving device has an installed cost of $825,000. The device will be used in a five-year project but is classified as three-year MACRS property for tax purposes (MACRS schedule). The required initial net working capital investment is $91,000, the tax rate is 23 percent, and the project discount rate is 9 percent. The device has an estimated Year 5 salvage value of $139,000. What level of pretax cost savings do we require for this project to be profitable? Note: Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16. Pretax cost savings
You are to consider the following projects. Which project would you approve if each project creates the same income? Assume i = 8% and a period of 15 years.

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