Answered: Calculate the initial cash outflow

Business

Finance

Calculate the initial cash outflow

EBK CONTEMPORARY FINANCIAL MANAGEMENT

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter10: Capital Budgeting: Decision Criteria And Real Option

Section: Chapter Questions

Problem 2P

See similar textbooks

Similar questions

The new venture requires an import of equipment from the UK at the cost of Rs.1,000,000. Further, it will cost the company Rs. 200,000 for shipping charges, installation and testing the equipment, etc. There will be an increase of Rs. 500,000 in working capital if the company starts this project. The existing equipment is sold at Rs. 10,000 at the book value, means at no profit no loss. The operating profit excluding the tax depreciation is expected to be: Calculate the initial cash outflow Please don't explain in excel
Old equipment with a book value of P15,000 will be replaced by new equipment with a purchase price of P50,000, exclusive of freight charges of P2,000. The market value of the old equipment is P11,000. Repair costs of P2,000 can be avoided if the new equipment is acquired. Assume a tax rate of 35%. What is the initial (net)investment of the project? Select one: a. P33,800 b. 52,000 c. P38,300 d. P39,700
Mahesh Industries is examining a proposal for new capital investment. Initial investment in the project is ₹ 12,00,000. Estimated salvage value is ₹ 3,00,000. Company uses straight line method of depreciation. The projected profits before depreciation & tax are as given below :Corporate tax rate is 25%, Cost of capital is 10%. Determine NPV of the project. Should the company invest in the project ?
Maria Corporation Limited(MCL) is interested to invest in a project. The initial cost of the project is Rs. 11.5 million with the salvage value of Rs. 2 million. The project will generate generates revenue of Rs 15 million per year with variable cost of Rs. 6 million and other expenses of Rs. 4 million. The revenue and cost/expense will expected to increase by 5% per annum for first 3 years and 7.5% for last 2 years. MCL’s cost of capital is 12%. The depreciation of the project is to be calculated at 33.33%, 44.45%, 14.81% and 7.41% respectively. The working capital changes as to percentage of revenue is 25%. The tax rate for the MCL is 35% per annum. Required: Calculate the operating cash-flows of the project till year 5. Evaluate the project via all capital budgeting techniques.
Terminal Ltd purchased a machine at R80 000 two years ago. This machine can be replaced with a new machine at a cost of R100 000. The new machine can be sold for R30 000 after completion of a 5-year project. The old machine can be sold for R15 000 today. The SARS capital allowance on both machines is calculated at 20% per year. Net working capital will decrease with R1 500 at the end of the project life. Assume a tax rate of 28%. What is the net cash flow of the project in year 5? R20 100 R21 600 R30 000 R28 500 R8 400
A company is considering two mutually exclusive projects. Both require an initial cash outlay of Rs 10,000 each, and have a life of five years. The company’s required rate of return is 10 per cent and pays tax at a 50 per cent rate. The projects will be depreciated on a straight –line basis. The before taxes cash flows expected to be generated by the projects are as follows:ProjectBefore –tax Cash Flow (Rs)1 2 3 4 5A 4,000 4,000 4,000 4,000 4,000B 6,000 3,000 2,000 5,000 5,000Calculate for each project: 1. The payback2. The average rate of return3. The net present value and profitability index4. The internal rate of return .Which project should be accepted and why?
b. Cendrawasih Inc. is considering replacing the equipment it uses to produce crayons. The equipment would cost RM1.37 million, have a 12-year life, and lower manufacturing costs by an estimated RM304,000 a year. The equipment will be depreciated using straight-line depreciation to a book value of zero. The required rate of return is 15 percent and the tax rate is 35 percent. Determine the net income from this proposed project.
A large company named High Hill Holding is considering a project. At the start of this project, the company will have to spend RM700 million to acquire necessary construction material and also paying the contractor with the following expected cash flows of RM200 million, RM370 million, RM225 million and RM700 million for Year 1, 2, 3 and 4 respectively. Assume a discount rate of 12% per annum, will the company consider the project and comment on the action to be taken. (b)
Lucky Cement wants to evaluate an acquisition of an equipment worth Rs 300,000. Its marginal tax rate is 35 percent. If purchased, the depreciation of equipment will take place at straight line method. The salvage value of the equipment is assumed to be 30,000 at the end of its useful life of 10 years. If the equipment is purchased, Lucky cement will finance the asset through borrowing from bank at annual before tax cost of 10%. If equipment is leased, Lucky Cement can have the equipment at Rs 38000 pre-tax rate per year, which is to be paid at the beginning of each year. Company’s weighted average after tax cost of capital is 10 percent. Compute the net advantage to leasing What alternative, leasing or owning, should be chosen? Explain
GRIP Industries is considering a new assembly line costing RM1,600,000. The instaliation will ncur a cost of RM350,000 and after-tax training cost of RM105,000. The assembly line will be fuly depreciated using the simplified straight-ine method over its 3- year depreciable life. Net working capital is expected to increase by RM420,000 at start and the full amount ill be recovered at the end of up year 3. First year sales are estimated to be RM1,800,00, and illincrease by RM200,000 each year throughout the 3-year period. Variable cost is 55% from sales, while fixed cost takes up RM225,000 per year. At terminal, the assembly line can be sold at RM700,000. GRIP is in the 35 percent tax bracket and has a required rate of returm of 12% A) Calculate the total initial outlay of the project. B) Determine the annual cash flow for the project from year 1 to year 3. C) Calculate the terminal cash flow at year 3. D) Calculate the net present value (NPV) and intermal required rate of return (IRR)…
ABC Holding will pay 3.500.000 ₺ to realize a new venture. wants to buy a factory worth. Also for the workshops section Payment of 1.500.000 ₺ and 1.000.000 ₺ for the construction of administrative buildings will be made. The factory, which has an economic life of 15 years, at the end of this period It is foreseen to be sold for 1.000.000 ₺. It will be produced from the factory It is estimated that the demand for the product will be 15,000 units / year and will increase by 5% each year. are being. The unit cost of the product is 20 ₺ and the sales price is 50 ₺. prices increase by 15% annually. The lowest interest rate expected from the investment Since it is 18%, the next time will be whether this investment should be made or not. Evaluate according to the method.
Reliance Enterprises is considering a new investment project of Rs.70 Mn comprising of Rs.60 Mn. on Plant & Equipment and Rs.10 Mn. on net working capital. The project will be financed by Equity capital (Rs.40 Mn) and Long-term debt of Rs 30Mn @ 13.5% The expected life of the project is 5 years at the end of which the plant and equipment would fetch a salvage value of Rs. 20 Mn while the liquidation value of working capital will be equal to its book value of Rs.10 Mn. The project will increase the revenues of the firm by Rs.85 Mn. each year and also increase the expenses (other than depreciation, interest on Long-Term loans & taxes) by Rs.40 Mn each year. Plant and equipment will be depreciated @ 25% per year on WDV basis. The marginal tax rate will be 30% and cost of equity is 21%. Estimate the FCFF & FCFE flows for the proposed project and its NPV & IRR.