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…
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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Johnson Sporting Goods is considering a project that will produce sales of $39,050 and have projected expenses of $22,700. Taxes will be $4,000 and the depreciation expense will be $2,275. An initial cash outlay of $1,850 is required for net working capital. What is the project's operating cash flow?
Jamaica Corp. is adding a new assembly line at a cost of $6 million. The firm expects the project to generate cash flows of $1 million, $1 million, $3 million, and $4 million over the next four years. Its cost of capital is 16 percent. What is the MIRR on this project, and should the company add the new assembly line? 18.25 percent, no O 18.25 percent, yes O 21 percent, no O 21 percent, yes none of these G13

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