Andronicus Corporation (AC) has the following jumbled information about an investment proposal: a. Revenues in each of years 1-4 = $39,000 b. Year 0 initial investment = $59,000 c. Inventory level = $19,500 in year 1, $21,900 in year 2, and $14,500 in year 3 - d. Production costs $12,700 in each of years 1-4 e. Salvage value = $13,900 in year 4 f. Depreciation=100% immediate bonus depreciation g. Tax rate 21% = h. There is an additional 6-month lag for all cash flows after year O. For example, customers pay consistently with a 6-month lag, as AC does for production costs, taxes, etc. Draw up a set of cash flow forecasts as in Table 6.4. If the cost of capital is 10%, what is the project's NPV? Assume that, if the project generates losses, those losses can be used to offset profits for tax purposes elsewhere in the business. Note: Do not round your intermediate calculations. Round your final answer to the nearest whole dollar amount.
Andronicus Corporation (AC) has the following jumbled information about an investment proposal: a. Revenues in each of years 1-4 = $39,000 b. Year 0 initial investment = $59,000 c. Inventory level = $19,500 in year 1, $21,900 in year 2, and $14,500 in year 3 - d. Production costs $12,700 in each of years 1-4 e. Salvage value = $13,900 in year 4 f. Depreciation=100% immediate bonus depreciation g. Tax rate 21% = h. There is an additional 6-month lag for all cash flows after year O. For example, customers pay consistently with a 6-month lag, as AC does for production costs, taxes, etc. Draw up a set of cash flow forecasts as in Table 6.4. If the cost of capital is 10%, what is the project's NPV? Assume that, if the project generates losses, those losses can be used to offset profits for tax purposes elsewhere in the business. Note: Do not round your intermediate calculations. Round your final answer to the nearest whole dollar amount.
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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Transcribed Image Text:Andronicus Corporation (AC) has the following jumbled information about an investment proposal:
a. Revenues in each of years 1-4 = $39,000
b. Year 0 initial investment = $59,000
c. Inventory level = $19,500 in year 1, $21,900 in year 2, and $14,500 in year 3
d. Production costs = $12,700 in each of years 1-4
e. Salvage value = $13,900 in year 4
f. Depreciation = 100% immediate bonus depreciation
g. Tax rate = 21%
h. There is an additional 6-month lag for all cash flows after year O. For example, customers pay consistently with a 6-month lag, as
AC does for production costs, taxes, etc.
Draw up a set of cash flow forecasts as in Table 6.4. If the cost of capital is 10%, what is the project's NPV? Assume that, if the project
generates losses, those losses can be used to offset profits for tax purposes elsewhere in the business.
Note: Do not round your intermediate calculations. Round your final answer to the nearest whole dollar amount.
NPV
Answer is complete but not entirely correct.
S
12,136x
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