Bing Enterprises, Inc., has been considering the purchase of a new manufacturing facility for $290,000. 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 $125,000, in nominal terms, at the end of the first year. The revenues are expected to increase at the inflation rate of 2 percent. Production costs at the end of the first year will be $50,000, in nominal terms, and they are expected to increase at 3 percent per year. The real discount rate is 5 percent. The corporate tax rate is 25 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

Bing Enterprises, Inc., has been considering the purchase of a new manufacturing facility for $290,000. 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 $125,000, in nominal terms, at the end of the first year. The revenues are expected to increase at the inflation rate of 2 percent. Production costs at the end of the first year will be $50,000, in nominal terms, and they are expected to increase at 3 percent per year. The real discount rate is 5 percent. The corporate tax rate is 25 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

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

Gluon Inc. is considering the purchase of a new high pressure glueball. It can purchase the glueball for $70,000 and sell its old low- pressure glueball, which is fully depreciated, for $12,000. The new equipment has a 10-year useful life and will save $16,000 a year in expenses. The opportunity cost of capital is 9%, and the firm's tax rate is 21%. What is the equivalent annual saving from the purchase if Gluon can depreciate 100% of the investment immediately. (Do not round intermediate calculations. Round your answer to 2 decimal places.) Equivalent annual savings
A small heat pump now costs $2,400 to purchase and install. It has a projected useful life of 18 years and will incur annual maintenance costs of $100 per year in real (year-zero) dollars over the useful life. These costs are projected to increase at 6% per year, which is the expected general inflation rate. The annual cost of electricity for the heat pump is $700 in year-zero dollars. Electricity prices are projected to increase at an annual rate of 8%. The firm's MARR, which includes an allowance for general price inflation, is 15% per year (im). No market value is expected from the heat pump at the end of the 18 years of service life. Click the icon to view the interest and annuity table for discrete compounding when i= 15% per year. a. What is the PW of owning and operating the heat pump? The PW is $: (Round to the nearest dollar.) b. (i) What is the AW, expressed in actual dollars, of owning and operating the heat pump? The AW is $ (Round to the nearest dollar.) (ii) What is the…
A company is considering buying a cnc machine. in todays dollars the maintenance cost for the machine( paid at the end of each year) will be 25,000 26,000 27,000 29,000 32,000 for years 1 to 5. The general inflation rate is estimated to be 7% per year, and the company will receive 14% return (interest) per year on its invested funds during the inflationary period. The company wants to pay for maintenance expenses in equivalent equal payments( in actual dollars) at the end of the 5 years. Find the amount of the companys payments. The amount of the companys payment us $ thousand (round to the nearest thousand)
complete answer, thank you.
he state of Florida sold a total of $36.1 million worth of lottery tickets at $1 each during the first week of January 2007. As prize money, a total of $41 million will be distributed over the next 21 years ($1,952,381 at the beginning of each year). The distribution of the first-year prize money occurs now, and the remaining lottery proceeds are put into the state’s educational reserve funds, which earn interest at the rate of 6% compounded annually. After the last prize distribution has been made (at the beginning of year 21), how much will be left over the reserve account? (withouth using the excel formulas please!)
AS (P100) AS (P125) AS (P73) P $280 $250 $220 125 $250 $220 $190 $310 $280 $250 125 125 100 100 100 75 75 75 Suppose the full-employment level of real output (Q) is $250 and the price level (P) is initially 100. Use the short-run aggregate supply schedules above to answer the following: What will be the level of real output in the short-run if the price level unexpectedly rises from 100 to 125 because of an increase in aggregate demand? $Blank 1 What will be the level of real output in the short-run if the price level unexpectedly falls from 100 to 75 because of a decrease in aggregate demand? $Blank 2 What will be the level of real output in the long-run when the price level rises from 100 to 125? $Blank 3 What will be the level of real output in the long-run when the price level falls from 100 to 75? $Blank 4
A company is considering buying a CNC machine. In today's dollars, it is estimated that the maintenance costs for the machine (paid at the end of each year) will be $29,000, $31,000, $34,000, $37,000, and $39,000 for years 1 to 5, respectively. The general inflation rate (7) is estimated to be 4% per year, and the company will receive 13% return (interest) per year on its invested funds during the inflationary period. The company wants to pay for maintenance expenses in equivalent equal payments (in actual dollars) at the end of each of the five years. Find the amount of the company's payments. The amount of the company's payments is $ thousand. (Round to the nearest thousand.)
Consider the following after-tax cash flow and general inflation rate: End of Year Cash Flow in Actual Dollars Expected Inflation Rate $60,000 $40,000 $50,000 $55.000 7.2% 8.6% 9.3% 1 3 What is the average annual inflation rate over the project period?
Beth bought some residential development property for 200,000 five years ago. She sold the property this year for $1,200,000 and spent $250,000 for infrastructure development in year 5, the year in which the property was sold. If the inflation rate for the past 5 years has been steady at 5% annually, compute the after-tax real rate of return on this investment. Assume a capital gain tax of 15%. Group of answer choices 33.17% 28.13% 26.83% 31.84%
place 4.22. Consider the following investment, in an inflation-free economy. Gamma High-Tech Company is considering the purchase of a $10,000 asset that will be used for only 2 years (project life). The salvage value of this asset at the end of 2 years is expected to be $4,000. The asset will generate annual revenue of $20,000 but is expected to have an annual expense of $5,000. The investment will be classified as a 3-MACRS property (tax life) with annual depreciation allowances of $3,333, $4,444, $1,481, and $741. The marginal income tax rate for the firm is 25%. The firm's inflation-free interest rate (i') is 10%. a. Determine the after-tax cash flow (ATC) for this investment project. b. The firm expects an average inflation rate (f) of 5% during the project period, but it also expects an 8% annual increase in revenue and a 6% annual increase in expense. No increase in salvage value is expected. Compute the present value of this investment.