Cirice Corporation is considering opening a branch in another state. The operating cash flow will be $154,200 a year. The project will require new equipmentcosting $601,000 that would be depreciated on a straight-line basis to zero over the 6-year life of the project. The equipment will have a market value of $183,000at the end of the project. The project requires an initial investment of $42,500 in net working capital, which will be recovered at the end of the project. The tax rateis 21 percent. What is the project's IRR?

Step 1:First find the After-tax salvage value:= 183,000 * ( 1 - 21%)= $144570 Step 2:= -601,000 -…

Answered: Cirice Corporation is considering…

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

See similar textbooks

Similar questions

Keene, Inc. is considering a new five-year expansion project that requires an initial fixed asset investment of $3.0 million. The fixed asset will be depreciated using on a straight-line basis to zero over its five year life. The fixed asset will have a market value of $350,000 at the end of the project. The project requires an initial investment in net working capital of $325,000. The working capital will be recovered at the end of the project’s life. The project is estimated to generate $2,250,000 in annual sales, with costs of $750,000. The tax rate is 35 percent. What is the free cash flow in year 1 (FCF1) on this project? a. $1,575,000 b. $975,000 c. $900,000 d. $1,500,000 e. $1,185,000
Amalgamated Industries is considering a 4- year project. The project is expected to generate operating cash flows of $3 million, $16 million, $18 million, and $14 million over the four years, respectively. It will require initial capital expenditures of $35 million dollars and an initial investment in NWC of $6 million. The firm expects to generate a $6 million after tax salvage value from the sale of equipment when the project ends, and it expects to recover 100% of its nw investments. Assuming the firm requires a return of 15% for projects of this risk level, what is the project's IRR? A. 16.16% B. 16.47% C. 15.39% D. 16.00% E. 15.70%
Esfandairi Enterprises is considering a new 3-year expansion project that requires an initial fixed asset investment of $2.37 million. The fixed asset qualifies for 100 percent bonus depreciation. 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. a. If the tax rate is 21 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, e.g., 1,234,567.) b. If the required return is 11 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.)
The management of Truelove Corporation is considering a project that would require an initial investment of $357,030 and would last for 7 years. The annual net operating income from the project would be $29,800, including depreciation of $46,890. At the end of the project, the scrap value of the project's assets would be $28,800 (Ignore income taxes.): Required: Determine the payback period of the project. (Round your answer to 2 decimal places.) Payback period years
DUB company 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. The project is estimated to generate $1,810,000 in annual sales, with costs of $700,000. The project requires an initial investment in net working capital of $450,000, and the fixed asset will have a market value of $480,000 at the end of the project. a. If the tax rate is 25 percent, what is the project’s Year 0 net cash flow? Year 1? Year 2? Year 3? (Do not round intermediate calculations) b. If the required return is 12%, what is the projects NPV? Please use excel and show equations.
The management of Lanzilotta Corporation is considering a project that would require an investment of $208,000 and would last for 6 years. The annual net operating income from the project would be $104,000, which includes depreciation of $15,000. The scrap value of the project's assets at the end of the project would be $24,000. The cash inflows occur evenly throughout the year. The payback period of the project is closest to (Ignore income taxes.): (Round your answer to 1 decimal place.) Multiple Choice 1.7 years 2.9 years 2.0 years 1.5 years
Quad Enterprises is considering a new 3-year expansion project that requires an initial fixed asset investment of $1.9 million. The fixed asset falls into the 3-year MACRS class (MACRS Table) and will have a market value of $151,200 after 3 years. The project requires an initial investment in net working capital of $216,000. The project is estimated to generate $1,728,000 in annual sales, with costs of $691,200. The tax rate is 23 percent and the required return on the project is 17 percent. What is the project's year 0 net cash flow? What is the project's year 1 net cash flow? What is the project's year 2 net cash flow? What is the project's year 3 net cash flow?
Quad Enterprises is considering a new 3-year expansion project that requires an initial fixed asset investment of $2.1 million. The fixed asset falls into the 3-year MACRS class (MACRS Table) and will have a market value of $159,600 after 3 years. The project requires an initial investment in net working capital of $228,000. The project is estimated to generate $1,824,000 in annual sales, with costs of $729,600. The tax rate is 25 percent and the required return on the project is 11 percent. Calculate the project net cash flow from year 0 to year 3.
Down Under Boomerang, Inc., is considering a new 3-year expansion project that requires an initial fixed asset investment of $2.28 million. The fixed asset falls into the 3-year MACRS class (MACRS schedule). The project is estimated to generate $1,750,000 in annual sales, with costs of $652,000. The project requires an initial investment in net working capital of $330,000, and the fixed asset will have a market value of $300,000 at the end of the project. a. If the tax rate is 23 percent, what is the project’s Year 0 net cash flow? Year 1? Year 2? Year 3? b. If the required return is 12 percent, what is the project's NPV?
Gemstones Inc. is considering a new production line. The expected economic life of the project is 6 years. The project will generate sales and incur costs annually. Variable cost is 52% of sales. Total annual fixed costs, excluding depreciation, are $353,000. The initial outlay of the project is $1,010,000 and will be depreciated on a straight-line basis to zero at the end of the project. The company's tax rate is 30% and the discount rate is 10.00%. Calculate the NPV break-even level of sales. (Assume that the half-year rule does not apply.) a. $1,425,606 b. $2,241,776 c. $1,575,903 d. $1,275,308 e. $3,103,472
Kolby's Korndogs is looking at a new sausage system with an installed cost of $735,000. The asset qualifies for 100 percent bonus depreciation and can be scrapped for $101,000 at the end of the project's 5-year life. The sausage system will save the firm $215,000 per year in pretax operating costs, and the system requires an initial investment in net working capital of $67,000. If the tax rate is 21 percent and the discount rate is 8 percent, what is the NPV of this project? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.) NPV =
Your company is considering a project which will require the purchase of $715,000 in new equipment. The company expects to sell the equipment at the end of the project for 25% of its original cost, but some assets will remain in the CCA class. Annual sales from this project are estimated at $256,000. Initial net working capital equal to 32.00% of sales will be required. All of the net working capital will be recovered at the end of the project. The firm requires a 10.00% return on similar investments. The tax rate is 35%, and the project life is 5 years. There are no other operating expenses. If the equipment is in a 33.00% CCA class, what is the present value of the CCA tax shield? Options $153,510 $157,348 $161,186 $165,024 $168,861

SEE MORE QUESTIONS

Recommended textbooks for you

Essentials Of Investments

Finance

ISBN:

9781260013924

Author:

Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Publisher:

Mcgraw-hill Education,

FUNDAMENTALS OF CORPORATE FINANCE

Finance

ISBN:

9781260013962

Author:

BREALEY

Publisher:

RENT MCG

Financial Management: Theory & Practice

Finance

ISBN:

9781337909730

Author:

Brigham

Publisher:

Cengage

Essentials Of Investments

Finance

ISBN:

9781260013924

Author:

Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Publisher:

Mcgraw-hill Education,

FUNDAMENTALS OF CORPORATE FINANCE

Finance

ISBN:

9781260013962

Author:

BREALEY

Publisher:

RENT MCG

Financial Management: Theory & Practice

Finance

ISBN:

9781337909730

Author:

Brigham

Publisher:

Cengage

Foundations Of Finance

Finance

ISBN:

9780134897264

Author:

KEOWN, Arthur J., Martin, John D., PETTY, J. William

Publisher:

Pearson,

Fundamentals of Financial Management (MindTap Cou…

Finance

ISBN:

9781337395250

Author:

Eugene F. Brigham, Joel F. Houston

Publisher:

Cengage Learning

Corporate Finance (The Mcgraw-hill/Irwin Series i…

Finance

ISBN:

9780077861759

Author:

Stephen A. Ross Franco Modigliani Professor of Financial Economics Professor, Randolph W Westerfield Robert R. Dockson Deans Chair in Bus. Admin., Jeffrey Jaffe, Bradford D Jordan Professor

Publisher:

McGraw-Hill Education

SEE MORE TEXTBOOKS