Chauhan Enterprises is considering a new three-year expansion project that requires an initial fixed asset investment of $1.96 million. The fixed asset falls into the three-year MACRS class (MACRS schedule). The project is estimated to generate $1.445 million in annual sales, with costs of $580,000. The project requires an initial investment in net working capital of $250,000, and the fixed asset will have a market value of $180,000 at the end of the project. The tax rate is 21 percent. a. What is the project's Year O net cash flow? Year 1? Year 2? Year 3? Note: A negative answer should be indicated by a minus sign. Do not round intermediate calculations and enter your answers in dollars, not millions of dollars, rounded to 2 decimal places, e.g., 1,234,567.89. b. If the required return is 12 percent, what is the project's NPV? Note: Do not round intermediate calculations and enter your answers in dollars, not millions of dollars, rounded to 2 decimal places, e.g., 1,234,567.89. a. Year 0 cash flow Year 1 cash flow Year 2 cash flow Year 3 cash flow b. NPV Year Property Class Three-Year Five-Year Seven-Year 12345678 33.33% 20.00% 14.29% 44.45 32.00 24.49 14.81 19.20 17.49 7.41 11.52 12.49 11.52 8.93 5.76 8.92 8.93 4.46

Chauhan Enterprises is considering a new three-year expansion project that requires an initial fixed asset investment of $1.96 million. The fixed asset falls into the three-year MACRS class (MACRS schedule). The project is estimated to generate $1.445 million in annual sales, with costs of $580,000. The project requires an initial investment in net working capital of $250,000, and the fixed asset will have a market value of $180,000 at the end of the project. The tax rate is 21 percent. a. What is the project's Year O net cash flow? Year 1? Year 2? Year 3? Note: A negative answer should be indicated by a minus sign. Do not round intermediate calculations and enter your answers in dollars, not millions of dollars, rounded to 2 decimal places, e.g., 1,234,567.89. b. If the required return is 12 percent, what is the project's NPV? Note: Do not round intermediate calculations and enter your answers in dollars, not millions of dollars, rounded to 2 decimal places, e.g., 1,234,567.89. a. Year 0 cash flow Year 1 cash flow Year 2 cash flow Year 3 cash flow b. NPV Year Property Class Three-Year Five-Year Seven-Year 12345678 33.33% 20.00% 14.29% 44.45 32.00 24.49 14.81 19.20 17.49 7.41 11.52 12.49 11.52 8.93 5.76 8.92 8.93 4.46

Managerial Accounting

15th Edition

ISBN:9781337912020

Author:Carl Warren, Ph.d. Cma William B. Tayler

Publisher:Carl Warren, Ph.d. Cma William B. Tayler

Chapter12: Capital Investment Analysis

Section: Chapter Questions

Problem 2CMA: Staten Corporation is considering two mutually exclusive projects. Both require an initial outlay of...

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Markoff Products is considering two competing projects, but only one will be selected. Project A requires an initial investment of $42,000 and is expected to generate future cash flows of $6,000 for each of the next 50 years. Project B requires an initial investment of $210,000 and will generate $30,000 for each of the next 10 years. If Markoff requires a payback of 8 years or less, which project should it select based on payback periods?
The Pinkerton Publishing Company is considering two mutually exclusive expansion plans. Plan A calls for the expenditure of 50 million on a large-scale, integrated plant that will provide an expected cash flow stream of 8 million per year for 20 years. Plan B calls for the expenditure of 15 million to build a somewhat less efficient, more labor-intensive plant that has an expected cash flow stream of 3.4 million per year for 20 years. The firms cost of capital is 10%. a. Calculate each projects NPV and IRR. b. Set up a Project by showing the cash flows that will exist if the firm goes with the large plant rather than the smaller plant. What are the NPV and the IRR for this Project ? c. Graph the NPV profiles for Plan A, Plan B, and Project .
Staten Corporation is considering two mutually exclusive projects. Both require an initial outlay of 150,000 and will operate for five years. The cash flows associated with these projects are as follows: Statens required rate of return is 10%. Using the net present value method and the present value table provided in Appendix A, which of the following actions would you recommend to Staten? a. Accept Project X and reject Project Y. b. Accept Project Y and reject Project X. c. Accept Projects X and Y. d. Reject Projects X and Y.
Wansley Lumber is considering the purchase of a paper company, which would require an initial investment of $300 million. Wansley estimates that the paper company would provide net cash flows of $40 million at the end of each of the next 20 years. The cost of capital for the paper company is 13%. Should Wansley purchase the paper company? Wansley realizes that the cash flows in Years 1 to 20 might be $30 million per year or $50 million per year, with a 50% probability of each outcome. Because of the nature of the purchase contract, Wansley can sell the company 2 years after purchase (at Year 2 in this case) for $280 million if it no longer wants to own it. Given this additional information, does decision-tree analysis indicate that it makes sense to purchase the paper company? Again, assume that all cash flows are discounted at 13%. Wansley can wait for 1 year and find out whether the cash flows will be $30 million per year or $50 million per year before deciding to purchase the company. Because of the nature of the purchase contract, if it waits to purchase, Wansley can no longer sell the company 2 years after purchase. Given this additional information, does decision-tree analysis indicate that it makes sense to purchase the paper company? If so, when? Again, assume that all cash flows are discounted at 13%.
Quad Enterprises is considering a new three-year expansion project that requires an initial fixed asset investment of $2.32 million. The fixed asset falls into the three-year MACRS class (MACRS schedule). The project is estimated to generate $1.735 million in annual sales, with costs of $650,000. The project requires an initial investment in net working capital of $250,000, and the fixed asset will have a market value of $180,000 at the end of the project. The tax rate is 21 percent. a. What is the project’s Year 0 net cash flow? Year 1? Year 2? Year 3? (A negative answer should be indicated by a minus sign. Do not round intermediate calculations and enter your answers in dollars, not millions of dollars, rounded to 2 decimal places, e.g., 1,234,567.89.) b. If the required return is 12 percent, what is the project's NPV? (Do not round intermediate calculations and enter your answers in dollars, not millions of dollars, rounded to 2 decimal places, e.g., 1,234,567.89.)
Quad Enterprises is considering a new three-year expansion project that requires an initial fixed asset investment of $2.45 million. The fixed asset falls into the three-year MACRS class (MACRS schedule). The project is estimated to generate $1,795,000 in annual sales, with costs of $688,000. The project requires an initial investment in net working capital of $420,000, and the fixed asset will have a market value of $435,000 at the end of the project. a. If the tax rate is 22 percent, what is the project’s Year 0 net cash flow? Year 1? Year 2? Year 3? (A negative answer should be indicated by a minus sign. Do not round intermediate calculations and enter your answers in dollars, not millions of dollars, rounded to two decimal places, e.g., 1,234,567.89.) b. If the required return is 9 percent, what is the project's NPV? (Do not round intermediate calculations and enter your answer in dollars, not millions of dollars, rounded to two decimal places, e.g., 1,234,567.89.)
Cochrane, Inc., is considering a new three-year expansion project that requires an initial fixed asset investment of $2.55 million. The fixed asset falls into the three-year MACRS class (MACRS Table). The project is estimated to generate $2,300,000 in annual sales, with costs of $1,290,000. The project requires an initial investment in net working capital of $165,000, and the fixed asset will have a market value of $190,000 at the end of the project. Assume that the tax rate is 35 percent and the required return on the project is 7 percent. Requirement 1: What is the net cash flow of the project for the following years? (Do not include the dollar signs ($).Negative amounts should be indicated by a minus sign.Enter your answers in dollars, not millions of dollars (e.g., 1,234,567).Round your answers to 2 decimal places (e.g., 32.16).) Year O 123 NPV Cash Flow Requirement 2: What is the NPV of the project? (Do not include the dollar sign ($). Enter your answer in dollars, not millions of…
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Esfandairi Enterprises is considering a new three-year expansion project that requires an initial fixed asset investment of $2,370,000. The fixed asset falls into the three-year MACRS class ( MACRS schedule). The project is estimated to generate $1,765,000 in annual sales, with costs of $ 664,000. The project requires an initial investment in net working capital of $360,000, and the fixed asset will have a market value of $345,000 at the end of the project. If the tax rate is 21 percent, what is the project's Year 0 net cash flow? Year 1? Year 27 Year 3? Note: A negative answer should be indicated by a minus sign. Do not round intermediate calculations and round your answers to two decimal places, e.g.. 32.16. If the required return is 11 percent, what is the project's NPV? Note: Do not round intermediate calculations and round your answer to two decimal places, e.g.. 32.16.
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Esfandairi Enterprises is considering a new 3-year expansion project that requires an initial fixed asset investment of $2.29 million. The fixed asset falls into the 3-year MACRS class. (MACRS schedule) The project is estimated to generate $1,790,000 in annual sales, with costs of $684,000. The project requires an initial investment in net working capital of $410,000, and the fixed asset will have a market value of $420,000 at the end of the project. a. If the tax rate is 21 percent, what is the project's Year O net cash flow? Year 1? Year 2? Year 3? (A negative answer should be indicated by a minus sign. Do not round intermediate calculations and enter your answers in dollars, not millions of dollars, rounded to two decimal places, e.g., 1,234,567.89.) b. If the required return is 12 percent, what is the project's NPV? (Do not round intermediate calculations and enter your answer in dollars, not millions of dollars, rounded to two decimal places, e.g., 1,234,567.89.) a. Year 0 cash…