Bing Enterprises, Inc., has been considering the purchase of a new manufacturing facility for $278,000. The facility is tobe fully depreciated on a straight-line basis over seven years. It is expected to have no resale value after the seven years.Operating revenues from the facility are expected to be $113,000, in nominal terms, at the end of the first year. Therevenues are expected to increase at the inflation rate of 5 percent. Production costs at the end of the first year will be $38,000, in nominal terms, and they are expected to increase at 6 percent per year. The real discount rate is 8 percent. Thecorporate tax rate is 23 percent. Calculate the NPV of the project.

NPV is defined as the sum of the present values of all future cash inflows less the sum of the…

Answered: Bing Enterprises, Inc., has been…

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

See similar textbooks

Similar questions

Bing Enterprises, Inc., has been considering the purchase of a new manufacturing facility for $281,000. The facility is to be fully depreciated on a straight-line basis over seven years. It is expected to have no resale value after the seven years. Operating revenues from the facility are expected to be $116,000, in nominal terms, at the end of the first year. The revenues are expected to increase at the inflation rate of 3 percent. Production costs at the end of the first year will be $41,000, in nominal terms, and they are expected to increase at 4 percent per year. The real discount rate is 6 percent. The corporate tax rate is 21 percent. Calculate the NPV
LO, Inc., is considering an investment of $440,000 in an asset with an economic life of five years. The firm estimates that the nominal annual cash revenues and expenses at the end of the first year will be $279,500 and $88,000, respectively. Both revenues and expenses will grow thereafter at the annual inflation rate of 2 percent. The company will use the straight-line method to depreciate its asset to zero over five years. The salvage value of the asset is estimated to be $60,000 in nominal terms at that time. The one-time net working capital investment of $17,500 is required immediately and will be recovered at the end of the project. The corporate tax rate is 25 percent. What is the project's total nominal cash flow from assets for each year? (A negative amount should be indicated by a minus sign. Do not round intermediate calculations and round your answers to the nearest whole number, e.g., 32.) Year 0 Year 1 Year 2 Year 3 Year 4 Year 5 Cash flow
Crane Lumber, Inc., is considering purchasing a new wood saw that costs $80,000. The saw will generate revenues of $100,000 per year for five years. The cost of materials and labor needed to generate these revenues will total $60,000 per year, and other cash expenses will be $10,000 per year. The machine is expected to sell for $2,700 at the end of its five-year life and will be depreciated on a straight-line basis over five years to zero. Crane’s tax rate is 26 percent, and its opportunity cost of capital is 17.60 percent.
A company is considering a new 6-year project that will have annual sales of $234,000 and costs of $146,000. The project will require fixed assets of $265,000, which will be depreciated on a 5-year MACRS schedule. The annual depreciation percentages are 20.00 percent, 32.00 percent, 19.20 percent, 11.52 percent, 11.52 percent, and 5.76 percent, respectively. The company has a tax rate of 34 percent. What is the operating cash flow for Year 2? a. 68460 b. 86912 c. 58752 d. 73097 e. 75379
Stepwise
Crane Lumber, Inc., is considering purchasing a new wood saw that costs $40,000. The saw will generate revenues of $100,000 per year for five years. The cost of materials and labor needed to generate these revenues will total $60,000 per year, and other cash expenses will be $10,000 per year. The machine is expected to sell for $3,900 at the end of its five-year life and will be depreciated on a straight-line basis over five years to zero. Crane’s tax rate is 26 percent, and its opportunity cost of capital is 14.20 percent. What is the project's NPV? (Do not round intermediate calculations. Round final answer to the nearest whole dollar, e.g. 5,275.)
DataPoint Engineering is considering the purchase of a new piece of equipment for $200,000. It has an eight-year midpoint of its asset depreciation range (ADR). It will require an additional initial investment of $100,000 in nondepreciable working capital. $25,000 of this investment will be recovered after the sixth year and will provide additional cash flow for that year. Income before depreciation and taxes for the next six are shown in the following table. Use Table 12–11, Table 12–12. Use Appendix B for an approximate answer but calculate your final answer using the formula and financial calculator methods. Need help with subpart D-1, previously asked question and was a-c were answered. Year Amount 1 $ 173,000 2 152,000 3 108,000 4 103,000 5 89,000 6 71,000 The tax rate is 25 percent. The cost of capital must be computed based on the following: Cost(aftertax) Weights Debt Kd 5.50 % 30 % Preferred stock Kp 9.20 10…
Rey
Atlantic Manufacturing is considering a new investment project that will last for four years. The delivered and installed cost of the machine needed for the project is $23,957 and it will be depreciated according to the three-year MACRS schedule. The project also requires an initial increase in net working capital of $300. Financial projections for sales and costs are in the table below. In addition, since sales are expected to fluctuate, NWC requirements will also fluctuate. The end-of- year NWC requirements are included below (hint: these NWC capital requirements DO NOT represent the change in NWC for the period). The $0 requirement for NWC at the end of year 4 means that all NWC is recovered by the end of the project. The corporate tax rate is 35% and the required return on the project is 12%. Year 1 2 3 4 Sales $11,653 $12,746 $13,973 $10,638 Costs 2,322 2,536 3,456 1,434 NWC 324 352 231 0 Requirements What is the project's NPV? (Round answer to O decimal places. Do not round…
The Susan Company is debating if they should purchase a new machine for its factory operations at a cost of $745,200. The investment is expected to generate $150,000 in annual cash flows for a period of eight years. The required rate of return is 10%. The old machine has a remaining life of eight years. The new machine is expected to have zero value at the end of the eightminus-year period. The disposal value of the old machine at the time of replacement is zero. (Click the icon to view the Future Value of $1 factors.) (Click the icon to view the Future Value of Annuity of $1 factors.) (Click the icon to view the Present Value of $1 factors.) (Click the icon to view the Present Value of Annuity of $1 factors.) Requirement 1: What is the Internal Rate of Return of this investment that Susan Company is making? O A. 14% В. 8% С. 10% D. 12% Requirement 2: Should Susan Company purchase the new machine? Why? O A. Yes, as the internal rate of return is more than their required rate return B.…
Shado, Incorporated, is considering an investment of $446, 000 in an asset with an economic life of five years. The firm estimates that the nominal annual cash revenues and expenses at the end of the first year will be $284, 900 and $89, 200, respectively. Both revenues and expenses will grow thereafter at the annual inflation rate of 4 percent. The company will use the straight-line method to depreciate its asset to zero over five years. The salvage value of the asset is estimated to be $66,000 in nominal terms at that time. The one - time net working capital investment of $20, 500 is required immediately and will be recovered at the end of the project. The corporate tax rate is 21 percent. What is the project's total nominal cash flow from assets for each year? (A negative amount should be indicated by a minus sign. Do not round intermediate calculations and round your answers to the nearest whole number, e.g., 32.)
Shinoda Manufacturing, Incorporated, has been considering the purchase of a new manufacturing facility for $460,000. The facility is to be fully depreciated on a straight- line basis over seven years. It is expected to have no resale value at that time. Operating revenues from the facility are expected to be $370,000, in nominal terms, at the end of the first year. The revenues are expected to increase at the inflation rate of 5 percent. Production costs at the end of the first year will be $215,000, in nominal terms, and they are expected to increase at 6 percent per year. The real discount rate is 8 percent. The corporate tax rate is 22 percent. Calculate the NPV of the project. (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.) NPV

SEE MORE QUESTIONS

Recommended textbooks for you

Essentials Of Investments

Finance

ISBN:

9781260013924

Author:

Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Publisher:

Mcgraw-hill Education,

FUNDAMENTALS OF CORPORATE FINANCE

Finance

ISBN:

9781260013962

Author:

BREALEY

Publisher:

RENT MCG

Financial Management: Theory & Practice

Finance

ISBN:

9781337909730

Author:

Brigham

Publisher:

Cengage

Essentials Of Investments

Finance

ISBN:

9781260013924

Author:

Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Publisher:

Mcgraw-hill Education,

FUNDAMENTALS OF CORPORATE FINANCE

Finance

ISBN:

9781260013962

Author:

BREALEY

Publisher:

RENT MCG

Financial Management: Theory & Practice

Finance

ISBN:

9781337909730

Author:

Brigham

Publisher:

Cengage

Foundations Of Finance

Finance

ISBN:

9780134897264

Author:

KEOWN, Arthur J., Martin, John D., PETTY, J. William

Publisher:

Pearson,

Fundamentals of Financial Management (MindTap Cou…

Finance

ISBN:

9781337395250

Author:

Eugene F. Brigham, Joel F. Houston

Publisher:

Cengage Learning

Corporate Finance (The Mcgraw-hill/Irwin Series i…

Finance

ISBN:

9780077861759

Author:

Stephen A. Ross Franco Modigliani Professor of Financial Economics Professor, Randolph W Westerfield Robert R. Dockson Deans Chair in Bus. Admin., Jeffrey Jaffe, Bradford D Jordan Professor

Publisher:

McGraw-Hill Education

SEE MORE TEXTBOOKS