Blossom, Inc., is considering investing in a new production line for eye drops. Other than investing in the equipment, the company needs to increase its cash and cash equivalents by $11,000, increase the level of inventory by $31,000, increase accounts receivable by $26,000, and increase accounts payable by $6,000 at the beginning of the project. Blossom will recover these changes in working capital at the end of the project 6 years later. Assume the appropriate discount rate is 8 percent. What are the present values of the relevant investment cash flows? (Do not round intermediate calculations. Round answer to 2 decimal places, e.g. 5,275.25.) Present value $

Blossom, Inc., is considering investing in a new production line for eye drops. Other than investing in the equipment, the company needs to increase its cash and cash equivalents by $11,000, increase the level of inventory by $31,000, increase accounts receivable by $26,000, and increase accounts payable by $6,000 at the beginning of the project. Blossom will recover these changes in working capital at the end of the project 6 years later. Assume the appropriate discount rate is 8 percent. What are the present values of the relevant investment cash flows? (Do not round intermediate calculations. Round answer to 2 decimal places, e.g. 5,275.25.) Present value $

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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Thunder Corporation, an amusement park, is considering a capital investment in a new exhibit. The exhibit would cost $163,796 and have an estimated useful life of 6 years. It can be sold for $62,300 at the end of that time. (Amusement parks need to rotate exhibits to keep people interested.) It is expected to increase net annual cash flows by $28,600. The company's borrowing rate is 8%. Its cost of capital is 10%. Click here to view the factor table. Calculate the net present value of this project to the company and determine whether the project is acceptable. (If the net present value is negative, use either a negative sign preceding the number eg -45 or parentheses eg (45). For calculation purposes, use 5 decimal places as displayed in the factor table provided. Round present value answer to 0 decimal places, e.g. 125.) Net present value $ The project
Blue Spruce Corporation, which operates an amusement park, is considering a capital investment in a new ride. The ride would cost $132,000 and have an estimated useful life of 5 years. The park will sell it for $62,300 at that time. (Amusement parks need to rotate rides to keep people interested.) The ride will be expected to increase net annual cash flows by $24,500. The company's borrowing rate is 8%. Its cost of capital is 10% Click here to view the factor table. Calculate the net present value of this project to the company. (If the net present value is negative, use either a negative sign preceding the number eg.-45 or parentheses eg. (45). For calculation purposes, use 5 decimal places as displayed in the factor table provided, eg. 1.25124. Round present value answer to 0 decimal places, eg 125) Net present value
Kim Hotels is interested in developing a new hotel in Seoul. The company estimates that the hotel would require an initial investment of $20 million. Kim expects that the hotel will produce positive cash flows of $3 million a year at the end of each of the next 20 years. The project's cost of capital is 13%. While Kim expects the cash flows to be $3 million a year, it recognizes that the cash flows could, in fact, be much higher or lower, depending on whether the Korean government imposes a large hotel tax. One year from now, Kim will know whether the tax will be imposed. There is a 50% chance that the tax will be imposed, in which case the yearly cash flows will be only $2.2 million. At the same time, there is a 50% chance that the tax will not be imposed, in which case the yearly cash flows will be $3.8 million. Kim is deciding whether to proceed with the hotel today or to wait 1 year to find out whether the tax will be imposed. If Kim waits a year, the initial investment will remain…
The Fizzy Beverage Co. is considering two alternative capital projects. Project 1: expansion of its existing traditional line of Fizzy beverages. Project 2: introduction of a new “healthy” line of beverages. The company has already spent $1,400,000 on research into the feasibility of these projects and has arrived at the following financial projections. · Both projects are estimated to have a life of 5 years. The required fixed asset investment or capital spending for project 1 is $30,000,000 and for project 2 is $35,000,000. Fixed assets will be depreciated straight line to zero. Fixed asset salvage value estimate for project 1 is $6,200,000 and for project 2 is $8,500,000 · In order to support anticipated sales, either project will require an increase in inventory of $8,600,000, an increase in accounts receivable of $2,800,000, and an increase in accounts payable of $6,300,000 · Cost of goods sold is projected at 35% of sales for either project. Selling,…
Grady-White Boats, Inc. is considering a project that will require additional inventory of $1,131,000. In addition, pursuing this project will also increase accounts payable by $400,000 as suppliers are willing to finance part of these purchases. Accounts receivable are currently $800,000 and are expected to increase by 10% if this project is accepted. The firm's cash requirements are not anticipated to change. What is the incremental change to net working capital as a result of accepting this project? O A. $1,531,000 O B. $1,451,000 C. $811,000 D. $651,000 O E. $1,611,000
Caspian Sea Drinks is considering the production of a diet drink. The expansion of the plant and the purchase of the equipment necessary to produce the diet drink will cost $28.00 million. The plant and equipment will be depreciated over 10 years to a book value of $1.00 million, and sold for that amount in year 10. Net working capital will increase by $1.30 million at the beginning of the project and will be recovered at the end. The new diet drink will produce revenues of $9.20 million per year and cost $1.77 million per year over the 10-year life of the project. Marketing estimates 12.00% of the buyers of the diet drink will be people who will switch from the regular drink. The marginal tax rate is 24.00%. The WACC is 12.00%. Find the NPV (net present value). Submit Answer format: Currency: Round to: 2 decimal places.
Thunder Corporation, an amusement park, is considering a capital investment in a new exhibit. The exhibit would cost $152,835 and have an estimated useful life of 6 years. It can be sold for $63,100 at the end of that time. (Amusement parks need to rotate exhibits to keep people interested.) It is expected to increase net annual cash flows by $26,000. The company's borrowing rate is 8%. Its cost of capital is 10%. Click here to view PV table. Calculate the net present value of this project to the company and determine whether the project is acceptable. (If the net present value is negative, use either a negative sign preceding the number eg -45 or parentheses eg (45). For calculation purposes, use 5 decimal places as displayed in the factor table provided. Round present value answer to O decimal places, e.g. 125.) Net present value $ The project is acceptable
Cisco is considering the development of a wireless home networking appliance, called HomeNet. The company expects to sell 370000 units per year over the project's life at an expected wholesale price of 170. Actual production will be outsourced at a cost of 96 per unit. Additionally, the company will spend $27000 in interest expense each year towards financing the project. In year 1, the firm must increase its accounts receivable by $870000, which will return to regular levels at the end of the project. The company spent $291000 last year on software to develop the router. $106.8 million of new equipment will be purchased and then depreciated using the straight line method over a 10-year life. They expect the market value of the equipment to depreciate at 6.6% per year. The project is expected to end in year 7. The current tax rate is 21%. Use this rate for both income tax rate and the capital gains rate. The WACC for the company is 12.6%. What is the NPV of the project?μ-
Caspian Sea Drinks is considering the production of a diet drink. The expansion of the plant and the purchase of the equipment necessary to produce the diet drink will cost $28.00 million. The plant and equipment will be depreciated over 10 years to a book value of $1.00 million, and sold for that amount in year 10. Net working capital will increase by $1.29 million at the beginning of the project and will be recovered at the end. The new diet drink will produce revenues of $9.46 million per year and cost $1.84 million per year over the 10-year life of the project. Marketing estimates 13.00% of the buyers of the diet drink will be people who will switch from the regular drink. The marginal tax rate is 22.00%. The WACC is 15.00%. Find the NPV (net present value). Submit Answer format: Currency: Round to: 2 decimal places.
Sheridan Corporation, an amusement park, is considering a capital investment in a new exhibit. The exhibit would cost $195,205 and have an estimated useful life of 10 years. It can be sold for $69,500 at the end of that time. (Amusement parks need to rotate exhibits to keep people interested.) It is expected to increase net annual cash flows by $26,700. The company’s borrowing rate is 8%. Its cost of capital is 10%. Click here to view PV table.Calculate the net present value of this project to the company and determine whether the project is acceptable. (If the net present value is negative, use either a negative sign preceding the number eg -45 or parentheses eg (45). For calculation purposes, use 5 decimal places as displayed in the factor table provided. Round present value answer to 0 decimal places, e.g. 125.) Net present value $enter the net present value in dollars rounded to 0 decimal places The project select an option…
Thunder Corporation, an amusement park, is considering a capital investment in a new exhibit. The exhibit would cost $204,212 and have an estimated useful life of 11 years. It can be sold for $64,700 at the end of that time. (Amusement parks need to rotate exhibits to keep people interested.) It is expected to increase net annual cash flows by $27,400. The company's borrowing rate is 8%. Its cost of capital is 10%. Click here to view the factor table. Calculate the net present value of this project to the company and determine whether the project is acceptable. (If the net present value is negative, use either a negative sign preceding the number eg -45 or parentheses eg (45). For calculation purposes, use 5 decimal places as displayed in the factor table provided. Round present value answer to O decimal places, e.g. 125.) Net present value $ The project is not acceptable
Thunder Corporation, an amusement park, is considering a capital investment in a new exhibit. The exhibit would cost $209,458 and have an estimated useful life of 12 years. It can be sold for $65,300 at the end of that time. (Amusement parks need to rotate exhibits to keep people interested.) It is expected to increase net annual cash flows by $27,100. The company's borrowing rate is 8%. Its cost of capital is 10%. Click here to view PV table. Calculate the net present value of this project to the company and determine whether the project is acceptable. (If the net present value is negative, use either a negative sign preceding the number eg -45 or parentheses eg (45). For calculation purposes, use 5 decimal places as displayed in the factor table provided. Round present value answer to 0 decimal places, e.g. 125.) Net present value %24

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