Century Roofing is thinking of opening a new warehouse, and the key data are shown below. The companyowns the building that would be used, and it could sell it for $100,000 after taxes if it decides not to open thenew warehouse. The equipment for the project would be depreciated by the straight-line method over theproject's 3-year life, after which it would be worth nothing and thus it would have a zero salvage value. No newworking capital would be required, and revenues and other operating costs would be constant over theproject's 3-year life. What is the project's NPV? (Hint: Cash flows are constant in Years 1-3.)Project cost of capital (r)10.0%Opportunity costS100,000Net equipment cost (depreciable basis) $65,000Straight-line deprec. rate for equipment 33.333%Sales revenues, each yearOperating costs (excl. deprec.), each year $25,000$123,000Tax rate25%a. $29,691b. S31,254c. $28,207d. $32,817e. $26,796

The Capital asset pricing model is a model that is used for the calculation of the cost of equity of…

Answered: Century Roofing is thinking of opening…

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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Arnold Inc. is considering a proposal to manufacture high-end protein bars used as food supplements by body builders. The project requires use of an existing warehouse, which the firm acquired three years ago for $1 million and which it currently rents out for $116,000. Rental rates are not expected to change going forward. In addition to using the warehouse, the project requires an upfront investment into machines and other equipment of $1.3 million. This investment can be fully depreciated straight-line over the next 10 years for tax purposes. However, Arnold Inc. expects to terminate the project at the end of eight years and to sell the machines and equipment for $581,000. Finally, the project requires an initial investment into net working capital equal to 10% of predicted first-year sales. Subsequently, net working capital is 10% of the predicted sales over the following year. Sales of protein bars are expected to be $4.5 million in the first year and to stay constant for eight…
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I do not understand the PV and cannot find the appropriate table for this?
Arnold Inc. is considering a proposal to manufacture high-end protein bars used as food supplements by body builders. The project requires use of an existing warehouse, which the firm acquired three years ago for $3 million and which it currently rents out for $137,000. Rental rates are not expected to change going forward. In addition to using the warehouse, the project requires an upfront investment into machines and other equipment of $1.4 million. This investment can be fully depreciated straight-line over the next 10 years for tax purposes. However, Arnold Inc. expects to terminate the project at the end of eight years and to sell the machines and equipment for $440,000. Finally, the project requires an initial investment into net working capital equal to 10% of predicted first-year sales. Subsequently, net working capital is 10% of the predicted sales over the following year. Sales of protein bars are expected to be $4.7 million in the first year and to stay constant for eight…
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Arnold Inc. is considering a proposal to manufacture high-end protein bars used as food supplements by body builders. The project requires use of an existing warehouse, which the firm acquired three years ago for $2 million and which it currently rents out for $130,000. Rental rates are not expected to change going forward. In addition to using the warehouse, the project requires an upfront investment into machines and other equipment of $1.2 million. This investment can be fully depreciated straight-line over the next 10 years for tax purposes. However, Arnold Inc. expects to terminate the project at the end of eight years and to sell the machines and equipment for $424,000. Finally, the project requires an initial investment into net working capital equal to 10% of predicted first-year sales. Subsequently, net working capital is 10% of the predicted sales over the following year. Sales of protein bars are expected to be $4.9 million in the first year and to stay constant for eight…
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