Acme Manufacturing is considering a project that requires an investment in new equipment of $3,200,000, with an additional $160,000 in shippingand installation costs. Acme estimates that its accounts receivable and inventories need to increase by $640,000 to support the new project, some ofwhich is financed by a $256,000 increase in spontaneous liabilities (accounts payable and accruals).The total cost of Acme's new equipment isIn contrast, Acme's initial investment outlay isSuppose Acme's new equipment is expected to sell for $200,000 at the end of its four-year useful life, and at the same time, the firm expects torecover all of its net operating working capital investment. The company chose to use straight-line depreciation, and the new equipment was fullydepreciated by the end of its useful life. If the firm's tax rate is 40%, what is the project's total terminal cash flow?$200,000$120,000$464,000and consists of the price of the new equipment plus the$504,000

The net cash flows that an entity generates after adjustment for the working capital or funding…

Answered: Acme Manufacturing is considering a…

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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U.S. Steel is considering a plant expansion to produce austenitic, precipitation hardened, duplex, and martensitic stainless steel round bars that is expected to cost $13 million now and another $10 million 1 year from now. If total operating costs will be $1.2 million per year starting 1 year from now, and the estimated salvage value of the plant is virtually zero, how much must the company make annually in years 1 through 10 to recover its investment plus a return of 15% per year?
Amalgamated Industries is considering a 4- year project. The project is expected to generate operating cash flows of $3 million, $16 million, $18 million, and $14 million over the four years, respectively. It will require initial capital expenditures of $35 million dollars and an initial investment in NWC of $6 million. The firm expects to generate a $6 million after tax salvage value from the sale of equipment when the project ends, and it expects to recover 100% of its nw investments. Assuming the firm requires a return of 15% for projects of this risk level, what is the project's IRR? A. 16.16% B. 16.47% C. 15.39% D. 16.00% E. 15.70%
Pat Inc, is considering a project that would have a ten-year life and would require a $1,000,000 investment in equipment. At the end of ten years, the project would terminate and the equipment would have no salvage value. The project would provide net operating income each year as follows (Ignore income taxes.): Sales $2,000,000 variable expenses $1,400,000 contribution margin $600,000 fixed expenses: fixed out-of-pocket cash expenses $300,000 depreciation $100,000 $400,000 net operating income $200,000 All of the above items, except for depreciation, represent cash flows. The company's required rate of return is…
2) solve following questions a) Determine the fixed capital investment of the acetic acid producing facility, which was established in 2020 with a capacity of 15 million kg/year. b) 2 million kg of product is produced annually in a chemical process. The annual product cost of this process is 4 million TL. If the annual production cost is 3 million TL, determine the general expenses for 1 kg of product.
Orchestra Inc. is considering expanding its production capacity. This has therefore called for the immediate purchase of a new plant which cost $50,000,000. This project will generate expected revenue of $19,500,000 per year. It is expected that the project would require $8,300,000 in cost of goods sold and $6,000,000 in operating expenses (excluding depreciation) Orchestra Inc. uses straight line depreciation. The project has useful life of 15 years and the plant has a residual value of $3,000,000 and will be sold at that amount at the end of the project. Orchestra's marginal tax is 30%. Suppose with the added plant, account receivables go up by $1,600,000, inventory shoots up by $1,600,000 and account payables also go up by $2,200,000 Required a) Calculate the free cash flows for the 15-year period of the project. b) Deduce the payback period, Net Project Value (NPV) and the IRR of the project assuming a WACC of 10% c) Should the project be accepted or rejected. Give justification…
U.S. Steel is considering a plant expansion to produce austenitic, precipitation hardened, duplex, and martensitic stainless steel round bars that is expected to cost $17 million now and another $10 million 1 year from now. If total operating costs will be $1.4 million per year starting 1 year from now, and the estimated salvage value of the plant is virtually zero, how much must the company make annually in years 1 through 11 to recover its investment plus a return of 23% per year? The company must make S million annually in years 1 through 11 to recover its investment plus a return of 23% per year.
Steele's Enterprises has purchased a new machine tool which will allow the company to improve the efficiency of its operations. On an annual basis, the machine will produce 19,000 units with an expected selling price of $23, prime costs of $10 per unit, and a fixed cost allocation of $2 per unit. Annual depreciation on the machine is $13,000, and the tax rate of the company is 32%. What is the annual cash flow generated from the new machine? A. $146,280 B. $159,120 C. $172,120 D. $133,280
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Disposable Containers Corp. (DCC) is considering a large plant expansion/modernization which will cost $98 million initially and another $62 million at the end of year 3. This project is expected to produce incremental after-tax profits of $29 million, $32 million, $26 million, $42 million, $40 million and $31 million to be received at the end of years 1, 2, 3, 4, 5 and 6 respectively. If the WACC is 9%, what is the project’s NPV? (Start by drawing a timeline.)
Johnson Entertainment Systems is setting up to manufacture a new line of video game consoles. The cost of the manufacturing equipment is $4,750,000. Expected cash flows over the next four years are $725,000, $850,000, $1,200,000, and $1,500,000. Given the company's required rate of return of 15 percent, should Johnson system cept this project? Why? (Do not round intermediate computations. Round final answer to nearest dollar.) O No, the project should be rejected because IRR is greater than the cost of capital O Yes, the project should be accepted because IRR is greater than the cost of capital O Yes, the project should be accepted because the NPV is positive O None of these are correct No, the project should be rejected because NPV is negative.
Carson Trucking is considering whether to expand its regional service center in Moab, Utah. The expansion will require the expenditure of $10,000,000 on new service equipment and will generate annual net cash inflows by reducing operating costs by $2,500,000 per year for each of the next eight years. In year 8, the firm will also get back a cash flow equal to the salvage value of the equipment, which is valued at $1 million. Thus, in Year 8 the investment cash inflow will total $3,500,000. Calculate the project NPV using each of the following discount rates: A. 9 percent B. 11 percent C. 13 percent D. 15 percent in excel
The proposed capital project calls for the Manufacturing Department to fully automate a production facility using one of two different advanced robotics systems. System A will incur development costs of $175,500. System B will cost $650,000 to develop. Both systems will be capitalized and amortized using a CCA rate of 10%. In addition, the firm believes that Net Working Capital will rise by $95,000 at time zero and then by an additional $9,000 at the end of each year for each year that the new system is operating (except at the end of the final year of the project). This applies to both alternatives. However, all of the increase in Net Working Capital will be recovered at the end of the project.If the new automated robotics system is put into use, the pre-tax cost savings each year are estimated as follows:Table 1Year System A System B1 $60,000 $350,0002 $50,000 $220,0003 $50,000 $240,0004 $50,000 $260,0005 $25,000 $280,000 As the financial analyst, you are required to draft a…

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