Better Mousetraps has developed a new trap. It can go into production for an initial investment in equipment of $6 million. The equipment will be depreciated straight-line over 6 years, but, in fact, it can be sold after 6 years for $500,000. The firm believes that working capital at each date must be maintained at a level of 10% of next year's forecast sales. The firm estimates production costs equal to $1.50 per trap and believes that the traps can be sold for $4 each. Sales forecasts are given in the following table. The project will come to an end in 5 years when the trap becomes technologically obsolete. The firm's tax bracket is 40%, and the required rate of return on the project is 12%. Use the MACRS depreciation schedule. Year: Sales (millions of traps) 1 2 3 4 5 6 0 0.00 0.50 0.60 1.00 1.00 0.60 0.20 NPV a. What is project NPV? Note: Negative amount should be indicated by a minus sign. Do not round intermediate calculations. Enter your answer in millions rounded to 4 decimal places. Thereafter 0 million

Better Mousetraps has developed a new trap. It can go into production for an initial investment in equipment of $6 million. The equipment will be depreciated straight-line over 6 years, but, in fact, it can be sold after 6 years for $500,000. The firm believes that working capital at each date must be maintained at a level of 10% of next year's forecast sales. The firm estimates production costs equal to $1.50 per trap and believes that the traps can be sold for $4 each. Sales forecasts are given in the following table. The project will come to an end in 5 years when the trap becomes technologically obsolete. The firm's tax bracket is 40%, and the required rate of return on the project is 12%. Use the MACRS depreciation schedule. Year: Sales (millions of traps) 1 2 3 4 5 6 0 0.00 0.50 0.60 1.00 1.00 0.60 0.20 NPV a. What is project NPV? Note: Negative amount should be indicated by a minus sign. Do not round intermediate calculations. Enter your answer in millions rounded to 4 decimal places. Thereafter 0 million

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

See similar textbooks

Similar questions

An investment of P200,000 can be made in a project that will produce a uniform annual revenue of P145,000 for 5 years and then have a salvage value of 10% of the investment. Out-of-pocket costs for operation and maintenance will be P60,000 per year. Taxes and insurance will be 4% of the first cost per year. The company expects capital to earn not less than 22% before income taxes. Is this a desirable investment? What is the payback period of the investment? Compute the rate of return. What is the net annual profit using annual worth method? What is the net present worth of net cash flow? The rate of return is [ Select ] [ Select ] 26.87% 25.65% 26.65% 24.87% The net annual profit is [ Select ] [ Select ] P9,742.93 P10,742.93 P11,742.93 P12,742.93 The net present worth of net cash flow is [ Select ] [ Select ] P27,900.25 P28,900.25 P26,900.25 P30,900.25 Is this a desirable investment? [ Select ] [ Select ] Yes No The payback period is [ Select ] Select ] 1.33 2.01 3.20 1.87
A surface mining company has determined that it needs an additional haul truck to increase ore production by eliminating the idle time incurred by the loading shovel waiting for a haul truck to arrive. The mining company decided to lease a new $600,000 haul truck for 5 years. If the lease payments are set at $9,000 per month, determine the minimum resale value of the haul truck at the end of the lease period for the leasing company to carn a minimum 12.0% Nominal Annual Rate. Assume monthly compounding and that no other fees are applied
solve it manually; do not use excel A steel pedestrian overpass must either be reinforced or replaced. Reinforcement would cost $25,000 and would make the overpass adequate for an additional 6 years of service. If the overpass is torn down now, the scrap value of the steel would exceed the removal cost by $15,000. If it is reinforced, it is estimated that its net salvage (market) value would be $18,000 at the time it is retired from service. A new pre-stressed concrete overpass would cost $140,000 and would meet the foreseeable requirements of the next 40 years. Such a design would have no net scrap or MV. It is estimated that the annual expenses of the reinforced overpass would exceed those of the concrete overpass by $3,200. Assume that money costs the state 8% per year and that the state pays no taxes. What would you recommend?
Answer All parts show steps
It refers to the number of years that the original capital investment for the project will take to be paid by its annual earnings O A. Profitability Index O B. Payback Period O C. Rate of Return O D. MARR
PW values of a project were calculated for several values of (i). The results were plotted as shown in the figure. a. What are the values of ROR (i*) for this project? Put 100 integer number followed immediately by% 75 1- 50 25 2- 10 20 30 40 50 b. If this project is a public sector project (i.e. its ROR is low). What value should we choose as the ROR for the 50 project? Put integer number followed immediately 75 by% 100 (O00TS x) Md
Holloman Hops has budgeted $300,000 per year to pay for labor over the next 5 years. If the company expects the cost of labor to increase by $10,000 each year, and the interest rate is 10%, what is the expected cost of the labor in the first year?
Help with this problem
Lifewear, a manufacturer of women's sports clothes, is considering adding a line of skirts and jackets. The production would take place in a part of its factory that is currently not being used. The first output would be available in time for the 2021 fall season. The following information is available. Answer parts (a) through (d). New Product Line Information First cost in 2020 ($) 15,100,000 Planned output (units/year) 324,000 Observed, current dollar MARR before tax Study period Materials 0.25 6 years Year 2020 Prices ($/unit) Labour 12 8.25 35 Output a. What is the real internal rate of return? (This is most easily done with a spreadsheet.) The real internal rate of return is about percent. (Round to one decimal place as needed.) b. What inflation rate will make the real MARR equal to the real internal rate of return? The inflation rate would need to be about percent. (Round to two decimal places as needed.) c. Calculate the present worth of the project under three possible future…
PROBLEM: Orange Line Metro Train The Orange Line Metro Train is an automated rapid transit system in Lahore, Punjab, Pakistan. It will be Pakistan's first metro and first of the three proposed colored rail lines for the Lahore Metro Train Project. The line will span 27.1 km with 25.4 km elevated and 1.72 km underground. Consisting of 26 stations and is expected to handle 250,000 passengers daily. It also encompasses as a part of the wider China Pakistan Economic Corridor. It is expected to be operational in early 2020. Lahore Metrobus System Inaugurated on February 11, 2014, the Lahore Metrobus System currently operates with a fleet of 66 buses. The buses run on a single 28.7 km long Ferozepur Road corridor. Following the initiation ceremony, use of the system was to be free during the first month. However, following a week of chaos and overcrowding, a fare of Rs. 20 was imposed irrespective of the QC
Ella Ltd recently started to manufacture and sell productDG. The variable cost of product DG is £4 per unit and the totalweekly fixed costs are £18 000.The company has set the initial selling price of product DG byadding a mark up of 40 per cent to its total unit cost. It has assumedthat production and sales will be 3000 units per week.The company holds no stocks of product DG.Required:(a) Calculate for product DG:(i) the initial selling price per unit; and(ii) the resultant weekly profit. The management accountant has established that alinear relationship between the unit selling price (P in £)and the weekly demand (Q in units) for product DG isgiven by:P = 20 - 0:002QThe marginal revenue (MR in £ per unit) is related to weeklydemand (Q in units) by the equation:MR = 20 - 0:004Q(b) Calculate the selling price per unit for product DG that shouldbe set in order to maximize weekly profit. (c) Distinguish briefly between penetration and skimming pricingpolicies when launching a new…
n A company produces two types of solar panels per year: x thousand of type A and y thousand of type B. The revenue and cost equations, in millions of dollars, for the year are given as follows. R(x, y) = 6x + 5y, C(x, y) = x² - 4xy+9y² + 12x-47y-7. Evaluate the maximum profit Oa. $80 million O b. $90 million Oc $96 million Od. $75 million