Bad Company has a new 4-year project that will have annual sales of 8,400 units. The price per unit is $19.90 and thevariable cost per unit is $7.65. The project will require fixed assets of $94,000, which will be depreciated on a 3-yearMACRS schedule. The annual depreciation percentages are 33.33 percent, 44.45 percent, 14.81 percent, and 7.41percent, respectively. Fixed costs are $34,000 per year and the tax rate is 25 percent. What is the operating cash flow forYear 3?$20,705$80,655$57,550$55,155$60,744

Operating cash flow is the amount which is earned by the investor from the project. It is the net…

Answered: Bad Company has a new 4-year project…

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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Motion Metrics is considering a four-year project to improve its production efficiency. Buying a new production equipment for $414,000 is estimated to result in $154,000 in annual pre-tax cost savings. The equipment falls into Class 8 for CCA purposes (CCA rate of 20% per year), and it will have a salvage value at the end of the project of $55,400. The project also requires an initial investment in spare parts inventory of $24,000, along with an additional $3,500 in inventory for each succeeding year of the project. If the firm's tax rate is 35% and its discount rate is 9%. Calculate the NPV of this project. (Do not round your intermediate calculations. Round the final answer to 2 decimal places. Omit $ sign in your response.) O NPV
You are evaluating a product for your company. You estimate the sales price of product to be $150 per unit and sales volume to be 10,500 units in year 1; 25,500 units in year 2; and 5,500 units in year 3. The project has a 3 year life. Variable costs amount to $75 per unit and fixed costs are $205,000 per year. The project requires an initial investment of $339,000 in assets which will be depreciated straight-line to zero over the 3 year project life. The actual market value of these assets at the end of year 3 is expected to be $45,000. NWC requirements at the beginning of each year will be approximately 15% of the projected sales during the coming year. The tax rate is 21% and the required return on the project is 12%. What will the year 2 free cash flow for this project be?
Gemstones Inc. is considering a new production line. The expected economic life of the project is 6 years. The project will generate sales and incur costs annually. Variable cost is 52% of sales. Total annual fixed costs, excluding depreciation, are $353,000. The initial outlay of the project is $1,010,000 and will be depreciated on a straight-line basis to zero at the end of the project. The company's tax rate is 30% and the discount rate is 10.00%. Calculate the NPV break-even level of sales. (Assume that the half-year rule does not apply.) a. $1,425,606 b. $2,241,776 c. $1,575,903 d. $1,275,308 e. $3,103,472
A new project has an initial cost of $250,000. The equipment will be depreciated on a straight-line basis to a zero book value over the five-year life of the project. The projected net income each year is $13,250, $18,000, $20,240, $15,150, and $11,900, respectively. What is the average accounting return? Multiple Choice 11.52% 8.95% 13.46% 12.57% 5.33%
Sheridan Company is considering a long-term investment project called ZIP. ZIP will require an investment of $123,200. It will have a useful life of 4 years and no salvage value. Annual revenues would increase by $79.240, and annual expenses (excluding depreciation) would increase by $39,200. Sheridan uses the straight-line method to compute depreciation expense. The company's required rate of return is 12%. Compute the annual rate of return. Annual rate of return Determine whether the project is acceptable? the project. eTextbook and Media Save for Later Attempts: 0 of 3 used Submit Answer
An elective project is currently under review. It requires an initial investment of $116,000 for equipment. The profit is expected to be $28,000 each year, over the 6-year project period. The salvage value of the equipment at the end of the project period is projected to be $22,000. Assume a MARR of 10%. Find an IRR for this project.
The Whilst Co. is analyzing a project that has projected sales of $189,400 and costs of $102,300. The project requires an investment in inventory of $15,000 plus another $28,000 in accounts receivable. Fixed assets of $80,000 are needed and will be depreciated straight-line over 5 years. Accounts payable will increase by $36,000. An interest expense of $11,000 will be incurred annually. The project has a life of 3 years. At the end of the three years, the equipment has an estimated market value of $26,000. The company requires a 14% rate of return and is in the 34% marginal tax bracket. What is the net present value of this project? $65,887 $68,023 $88,671 $91,425 None of the above.
Wendy and Wayne are evaluating a project that requires an initial investment of $792,000 in fixed assets. The project will last for fourteen years, and the assets have no salvage value. Assume that depreciation is straight-line to zero over the life of the project. Sales are projected at 143,000 units per year. Price per unit is $43, variable cost per unit is $24, and fixed costs are $800,712 per year. The tax rate is 36 percent, and the required annual return on this project is 12 percent. The projections given for price, quantity, variable costs, and fixed costs are all accurate to within +/- 15 percent. Required: (a)Calculate the best-case NPV. (Do not round your intermediate calculations.) (Click to select) (b)Calculate the worst-case NPV. (Do not round your intermediate calculations.) (Click to select) W
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.
Cardinal Company is considering a five-year project that would require a $2,890,000 investment in equipment with a useful life of five years and no salvage value. The company's discount rate is 12%. The project would provide net operating income in each of five years as follows: Sales Variable expenses Contribution margin Fixed expenses: Advertising, salaries, and other fixed out-of-pocket costs Depreciation Total fixed expenses $2,739,000 1, 100, 000 1,639,000 $641,000 578,000 1, 219, 000 $ 420,000 Net operating income Click here to view Exhibit 12B-1 and Exhibit 12B-2, to determine the appropriate discount factor(s) using table. 4. What is the project's net present value? (Round discount factor(s) to 3 decimal places and final answer to the nearest whole dollar amount.) Net present value
The Bruin's Den Outdoor Gear is considering a new 6-year project to produce a new tent line. The equipment necessary would cost $1.25 million and be depreciated using straight-line depreciation to a book value of zero. At the end of the project, the equipment can be sold for 15 percent of its initial cost. The company believes that it can sell 22,500 tents per year at a price of $62 and variable costs of $23 per tent. The fixed costs will be $375,000 per year. The project will require an initial investment in net working capital of $185,000 that will be recovered at the end of the project. The required rate of return is 10.5 percent and the tax rate is 40 percent. What is the NPV?
Pina Colada Company is considering a capital investment of $419,870 in additional productive facilities. The new machinery is expected to have a useful life of 5 years with no salvage value. Depreciation is computed by the straight-line method. During the life of the investment, annual net income and cash flows are expected to be $39,000 and $121,000, respectively. Pina Colada has a 12% cost of capital rate, which is the minimum acceptable rate of return on the investment. Click here to view PV tables. (a) Compute the annual rate of return. (Round answer to 1 decimal place, e.g. 15.5.) Annual rate of return. % Compute the cash payback period on the proposed capital expenditure. (Round answer to 2 decimal places, e.g. 15.25.) Cash payback period years

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