Argyl Manufacturing is evaluating the possibility of expanding its operations. This expansion will require the purchase of land at a cost of $140,000. A new building will cost $140,000 and will be depreciated on a straight-line basis over 20 years to a salvage value of $0. Actual land salvage at the end of 20 years is expected to be $240,000. Actual building salvage at the end of 20 years is expected to be $180,000. Equipment for the facility is expected to cost $210,000. Installation costs will be an additional $40,000 and shipping costs will be $10,000. This equipment will be depreciated as a 7-year MACRS asset. Actual estimated salvage at the end of 20 years is $0. The project will require net working capital of $55,000 initially (year 0), an additional $50,000 at the end of year 1, and an additional $50,000 at the end of year 2. The project is expected to generate increased EBIT (operating income) for the firm of $120,000 during year 1. Annual EBIT is expected to grow at a rate of 3 percent per year until the project terminates at the end of year 20. The marginal tax rate is 40 percent. Use Table 9A-3 and Table I to answer the questions below. Round your answers to the nearest dollar. Compute the initial net investment. $ Compute the annual net cash flow from the project in year 20. $
Argyl Manufacturing is evaluating the possibility of expanding its operations. This expansion will require the purchase of land at a cost of $140,000. A new building will cost $140,000 and will be depreciated on a straight-line basis over 20 years to a salvage value of $0. Actual land salvage at the end of 20 years is expected to be $240,000. Actual building salvage at the end of 20 years is expected to be $180,000. Equipment for the facility is expected to cost $210,000. Installation costs will be an additional $40,000 and shipping costs will be $10,000. This equipment will be depreciated as a 7-year MACRS asset. Actual estimated salvage at the end of 20 years is $0. The project will require net working capital of $55,000 initially (year 0), an additional $50,000 at the end of year 1, and an additional $50,000 at the end of year 2. The project is expected to generate increased EBIT (operating income) for the firm of $120,000 during year 1. Annual EBIT is expected to grow at a rate of 3 percent per year until the project terminates at the end of year 20. The marginal tax rate is 40 percent. Use Table 9A-3 and Table I to answer the questions below. Round your answers to the nearest dollar. Compute the initial net investment. $ Compute the annual net cash flow from the project in year 20. $
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
Related questions
Question
Argyl Manufacturing is evaluating the possibility of expanding its operations. This expansion will require the purchase of land at a cost of $140,000. A new building will cost $140,000 and will be
Compute the initial net investment.
$
Compute the annual net cash flow from the project in year 20.
$
Transcribed Image Text:TABLE I
Future Value Interest Factor (FVIF) ($1 at i % per period for n periods); FVIF = (1 + i)"; FV, = PV, (FVIF,in)
Period, n 1%
2%
1.000
1.000
1.020 1.030
3%
4%
5%
6%
7%
8%
9%
10%
1.000
1.100
11%
1.000
1.110
12%
1.000
1.120
13%
1.000
1.070
1.000
1.000
1.040
1.000
1.000
1.060
1.000
1.080
1.000
1.090
1.000
1.130
1.010
1.050
1.103
1.158
1
1.020
1.030
1.040 1.061
1.093
1.061
1.082
1.125
1.254
1.405
1.124
1.191
1.262
1.338
1.419
1.145
1.166
1.260
1.188
1.295
1.412
1.539
1.210
1.331
1.232
1.368
1.277
1.443
1.225
4
1.041
1.082 1.126
1.170
1.216
1.311
1.360
1.464
1.518
1.574
1.630
1.051
1.104 1.159
1.217
1.276
1.403
1.469
1.611
1.685
1.762
1.842
1.062
1.072
1.083
1.094
6.
7
1.126 1.194
1.149 1.230
1.265
1.316
1.340
1.407
1.477
1.551
1.501
1.606
1.587
1.677
1.828
1.772
1.949
1.870
2.076
1.974
2.211
2.082
2.353
1.504
1.714
8.
9.
1.172 1.267
1.195 1.305
1.369
1.423
1.594
1.689
1.718
1.838
1.851
1.999
1.993
2.172
2.144
2.358
2.305
2.558
2476
2.773
3.106
2.658
3.004
1.105
1.219 1.344
1.243
1.268
1.629
1.791
2.367
2.594
2.853
3.138
10
1.480
1.967
2.159
2.839
3.395
2.580
2.813
11
1.116
1.127
1.384
1.426
1.539
1.601
1.710
1.796
1.898
2.012
2.105
2.252
2.332
2.518
3.152
3.498
3.479
3.896
3.836
4.335
12
13
14
1.138
1.149
1.294 1.469
1.319
1.513
1.665
1.732
1.886
1.980
2.133
2.261
2.410
2.579
2.720
2.937
3.066
3.342
3.452
3.797
3.883
4.310
4.363
4.887
4.898
5.535
3.642
3.970
4.328
4.717
15
1.161
1.346
1.558
1.801
2.079
2.397
2.759
3.172
3.426
4.177
4.785
5311
5.474
6.130
6.254
1.373
2.952
4.595
5.054
5.560
16
1.173
1.605
1.873
2.183
2.540
7.067
1.184
1.196
6.866
7.690
7.986
17
18
1.400 1.653
1.428
1.948
2.026
2.292
2.407
2527
2.653
2.693
2.854
3.026
3.207
4.049
4.292
3.159
3.380
3.700
3.996
5.895
6.544
1.702
1.754
1.486 1.806
9.024
19
20
1.208
1.220
1.270
7.263
8.062
12.239
8.613
9.646
1.457
2.107
2.191
3.617
3.870
4.316
4.661
5.142
6.116
10.197
11.523
6.728
5.604
7.911
6.341
6.848
24
1.608 2.033
2.563
3.225
5.072
5.427
9.850
15.179
18.790
21.231
25
1.282
1.641
2.094
2.666
3.386
8.623
10.835
13.585
17.000
30
40
1.348
1.489
2.427
1.811
2.208 3.262
3.243
4.801
4.322
7.040
5.743
7.612
10.286 14.974
10.063
21.725
13.268
31.409
17.449
45.259
22.892
65.001
29.960
93.051
39.116
132.782
50
60
1.645
1.817
2.692 4.384
5.892
3.281
7.107 11.467
10.520 18.679
18.420 29.457
32.988 57.946 101.257
46.902
74.358
117.391
304.482
184.565 289.002
524.057 897.597
450.736
176.031
1,530.05
Period, n 14%
15%
16%
17%
18%
1.000
1.180
19%
20%
24%
28%
32%
36%
40%
1.000
1.320
1.000
1.000
1.000
1.000
1.000
1.000
1.000
1.000
1.280
1.000
1.000
1.140
1.150
1.160
1.170
1.190
1.200
1.240
1.360
1.400
1.960
2
1.300
1322
1.346
1.369
1.392
1.416
1.440
1.538
1.638
1.742
1.850
1.482
1521
1.749
2.011
1.907
2.300
2.515
2.744
3.842
5378
3
1.561
1.602
1.643
1.685
1.728
2.067
1.874
2.192
1.939
2.288
4.
1.689
1.925
1.811
2.100
2.436
2.826
2.005
2.386
2.074
2.488
2.364
2.932
2.684
3.436
3.036
4.007
3.421
4.653
6.
7.
2.195
2502
7530
10.541
2313
2.565
3.001
2.700
2.840
2.986
3.583
3.635
4.508
4.398
5.629
5.290
6.983
6.328
8.605
2.660
3.185
3.379
2.853
3.252
3.278
3.803
5.590
6.931
3.511
4.108
4.807
5.624
4.021
7.206
9.223
11.703
14.758
20.661
8.
3.059
3.518
3.759
4.435
4.300
9.217
12.166
9
4.785
5.160
15.917
10
11
3.707
4.226
4.046
4.652
4.411
5.117
5.234
6.176
5.695
6.777
6.192
7.430
8.594
10.657
13.215
11.806
15.112
16.060
21.199
21.647
29.439
28.925
40.496
12
13
4.818
5.492
5.350
6.153
6.580
7.699
40.037
54.451
5.926
6.886
7.988
9.266
7.288
8.599
8.064
8.916
19.343
24.759
27.983
36.937
56.694
79.372
9.596
10.699
16.386
7.076
8.137
9.007
48.757
64.359
14
6.261
7.138
10.147
11.974
11.420
13.590
12.839
15.407
20.319
25.196
31.961
40.565
74.053
111.120
155.568
15
10.539
100.712
16
17
8.137
9.276
9.358
10.761
10.748
12.468
136.969 217.795
304.914
186.278
12.330
14.129
16.172
19.244
18.488
22.186
31.243
38.741
51.923
66.461
84.954
112.139
14.426
16.879
16.672
19.673
23.214
18
10.575
12.375
14.463
16.777
22.901
26.623
31.948
48.039
148.023
85.071
108.890 195.391
253.338
426.879
19
12.056
14.232
19.748
27.252
59.568
344.540
597.630
13.743
23.212
32.429
65.032
139.380 257.916
20
24
16.367
28.625
19.461
35.236
23.106
43.297
27.393
53.109
38.338
79.497
468.574
374.144 783.023 1,603.00
478.905 1,033.59 2,180.08 4,499.88
634.820 1,645.50 4,142.07 10,143.0 24,201.4
66,520.8 219,562 700,038
73.864
174.631
836.683
3,214.20
95.396
237.376
216.542
25
30
26.462
50.950
32.919
66.212
40.874
85.850
50.658
111.065
62.669
143.371
77.388
184.675
40
700.233 1,083.66 1,670.70
60 2,595.92 4,384.00 7,370.20 12,335.4 20,555.1 34,105.0 56,347.5 402,996
750.378 1,051.67
2,566.22 3,927.36 5,988.91
188.884
267.864 378.721
533.869
1,469.77 5,455.91 19,426.7
9,100.44 46,890.4 229,350
50
Transcribed Image Text:ATABLE 9A.3
Depreciation Rates for MACRS Property Other than Real Property*
Recovery Year
3-Year
5-Year
7-Year
10-Year
15-Year
20-Year
1
33.33%
20.00%
14.29%
10.00%
5.00%
3.750%
2
44.45
32.00
24.49
18.00
9.50
7.219
3
14.81
19.20
17.49
14.40
8.55
6.677
4
7.41
11.52
1249
11.52
7.70
6.177
11.52
8.93
9.22
6.93
5.713
5.76
8.92
7.37
6.23
5.285
8.93
6.55
5.90
4.888
8
4.46
6.55
5.90
4.522
6.56
5.91
4.462
10
6.55
5.90
4.461
11
3.28
5.91
4.462
12
5.90
4.461
13
5.91
4.462
14
5.90
4.461
15
5.91
4.462
16
2.95
4.461
17
4.462
18
4.461
19
4.462
20
4.461
21
2231
67
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