Andronicus Corporation (AC) has the following jumbled information about an investment proposal: a. Revenues in each of years 1-4 = $22,000 b. Year O initial investment = $42,000 c. Inventory level = $11,000 in year 1, $11,700 in year 2, and $6,000 in year 3 d. Production costs = $7,600 in each of years 1-4 e. Salvage value = $12,200 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 0. For example, customers pay consistently with a 6-month lag, 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 12%, 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. Answer is complete but not entirely correct.
Andronicus Corporation (AC) has the following jumbled information about an investment proposal: a. Revenues in each of years 1-4 = $22,000 b. Year O initial investment = $42,000 c. Inventory level = $11,000 in year 1, $11,700 in year 2, and $6,000 in year 3 d. Production costs = $7,600 in each of years 1-4 e. Salvage value = $12,200 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 0. For example, customers pay consistently with a 6-month lag, 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 12%, 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. Answer is complete but not entirely correct.
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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Raghubhai
Transcribed Image Text:Andronicus Corporation (AC) has the following jumbled information about an investment proposal:
a. Revenues in each of years 1-4 = $22,000
b. Year O initial investment = $42,000
c. Inventory level = $11,000 in year 1, $11,700 in year 2, and $6,000 in year 3
d. Production costs $7,600 in each of years 1-4
=
e. Salvage value $12,200 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 0. 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 12%, 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 (7,903)
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