Almendarez Corporation is considering the purchase of a machine that would cost $150,000 and would last for 5 years. Atthe end of 5 years, the machine would have a salvage value of $18,000. By reducing labor and other operating costs, themachine would provide annual cost savings of $39,000. The company requires a minimum pretax return of 13% on allinvestment projects. (Ignore income taxes.)Click here to view Exhibit 7B-1 and Exhibit 7B-2, to determine the appropriate discount factor(s) using the tables provided.The net present value of the proposed project is closest to: (Round your intermediate calculations and final answer tothe nearest whole dollar amount.)Multiple Choice$(45,000)Q Search< PrevD5 of 7KNext >((((|個個

Net present value describes the amount of profitability generated by an investment and is expressed…

Answered: Almendarez Corporation is considering…

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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A Company has an opportunity to produce and sell a new product. Your team has been asked to use capital budgeting analysis to determine whether this would be a profitable venture for the company. New equipment would have to be acquired to produce the product. The equipment would cost $155,000 and be usable for 10 years. After 10 years, it would have a salvage value equal to 5% of the original cost. The asset will be sold at salvage value at the end of the asset's life. The discount rate for the company is 7%. See below for the forecasted net income per year from this project. Year Net Income per year Year 1 2,144 Year 2 3,531 Year 3 5,133 Year 4 6,113 Year 5 10,243 Year 6 10,500 Year 7 12,546 Year 8 12,600 Year 9 12,600 Year 10 12,600 Required: 1. Calculate the Payback period and explain the results. (note, you can only use the formula with even cash flows, research how to calculate it with uneven cashflows) 2. Calculate ARR and explain the results (use average net income for this…
What is the answer to this. Eggz, Incorporated, is considering the purchase of new equipment that will allow the company to collect loose hen feathers for sale. The equipment will cost $455,000 and will be eligible for 100 percent bonus depreciation. The equipment can be sold for $63,000 at the end of the project in 5 years. Sales would be $347,000 per year, with annual fixed costs of $53,000 and variable costs equal to 40 percent of sales. The project would require an investment of $37,000 in NWC that would be returned at the end of the project. The tax rate is 21 percent and the required return is 13 percent. Calculate the NPV of this project. Note: Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.
ACDC Company is considering the installation of a new machine that costs $150,000. The machine is expected to lead to net income of $44,000 per year for the next 5 years. Using straight-line depreciation, $0 salvage value, and an effective income tax rate of 28%, determine the after-tax rate of return for this investment. If the company’s after-tax MARR rate is 12%, would this be a good investment or not?
The Zeron Corporation wants to purchase a new machine for its factory operations at a cost of $350,000. The investment is expected to generate $225,000 in annual cash flows for a period of four years. The required rate of return is 10%. The new machine is expected to have zero value at the end of the four-year period. What is the net present value of the investment closest to? Would the company want to purchase the new machine? Income taxes are not considered. A) $363,025; yes B) $22,500; no C) $350,000; yes D) $375,650; no
Your new employer, Freeman Software, is considering a new project whose data are shown below. The equipment that would be used has a 3-year tax life, and the allowed depreciation rates for such property are 33.33%, 44.45%, 14.81%, and 7.41% for Years 1 through 4. Revenues and other operating costs are expected to be constant over the project's 10-year expected life. What is the Year 1 cash flow? Equipment cost (depreciable basis) $65,000 Sales revenues, each year $60,000 Operating costs (excl. deprec.) $25,000 Tax rate 25.0% a. $36,869 b. $31,849 c. $35,114 d. $31,666 e. $33,442
Cadillac Company is evaluating an investment that would have an eight-year life and would require a P300,000 purchase of equipment which has no salvage value. The project has the following additional information : Sales, P500,000; Cash Variable Expenses, P200,000; Fixed cash expenses, P150,000; Depreciation expense, P37,500. If the company's required rate of return is 10%, what is the payback period of the investment. A. 3 years B. 2 years C. 2.5 years D. 2.67 years
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B2B Company is considering the purchase of equipment that would allow the company to add a new product to its line. The equipment costs $360,000 and has a 12-year life and no salvage value. B2B Company requires at least an 8% return on this investment. The expected annual income for each year from this equipment follows: (PV of $1. FV of $1. PVA of $1, and FVA of $1) Note: Use appropriate factor(s) from the tables provided. Sales of new product Expenses Materials, labor, and overhead (except depreciation) Depreciation-Equipment Selling, general, and administrative expenses Income (a) Compute the net present value of this investment. (b) Should the investment be accepted or rejected on the basis of net present value? Complete this question by entering your answers in the tabs below. Required A Required B Compute the net present value of this investment. Note: Round your present value factor to 4 decimals and other final answers to the nearest whole dollar. Years 1 through 12 Initial…
Olinick Corporation is considering a project that would require an investment of $354,000 and would last for 8 years. The incremental annual revenues and expenses generated by the project during those 8 years would be as follows (ignore income taxes.): Sales Variable expenses Contribution margin Fixed expenses: Salaries Rents Depreciation Total fixed expenses Net operating income Multiple Choice The scrap value of the project's assets at the end of the project would be $30,000. The cash inflows occur evenly throughout the year. The payback period of the project is closest to: (Round your answer to 1 decimal place.) 4.8 years $ 210,000 22,000 188,000 7.5 years 40,000 53,000 48,000 141,000 $ 47,000
Consider the following project of Hand Clapper, Incorporated. The company is considering a four-year project to manufacture clap-command garage door openers. This project requires an initial investment of $14 million that will be depreciated straight- line to zero over the project's life. An initial investment in net working capital of $590,000 is required to support spare parts inventory; this cost is fully recoverable whenever the project ends. The company believes it can generate $11.6 million in pretax revenues with $4.4 million in total pretax operating costs. The tax rate is 21 percent and the discount rate is 11 percent. The market value of the equipment over the life of the project is as follows: Year Market Value (millions) a. 1 $ 11.2 9.1 234 4.9 1.3 Assuming the company operates this project for four years, what is the NPV? (Do not round intermediate calculations and enter your answer in dollars, not millions, rounded to 2 decimal places, e.g., 1,234,567.89.) b-1. Compute…
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An entrepreneur wants to evaluate a project for 4 years of operation.As an initial investment, project requires purchase of fixed assets for $ 20,000, which will last exactly 4 years, at end of which they are expected to have no scrap value. Expected sales revenue amounts to $9,000 per year, while total out-of-pocket expenses are expected to be $1,800 per year.IT IS REQUESTED: Considering that investor's opportunity cost is 12% and income tax rate is 27%.a) Determine income subject to income tax and net income for each year.b) Based on above, determine net cash flow for each year.c) Determine if investment under study is profitable, calculating NPV and IRR. Develop your calculations on a excel spreadsheet. Note: Assume that useful life of fixed assets for income tax purposes is equal to their economic useful life.

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