STmComputer Disk Duplicators, Inc. has been considering several capital investment proposals for the year beginning in 2022. For each investment proposal, therelevant cash flows and other relevant financial data are summarized in the table below. New assets will be depreciated under the MACRS system rather than beingfully expensed right away. In the case of a replacement decision, the total installed cost of the equipment will be partially offset by the sale of existing equipment. Thefirm is subject to a 40 percent tax rate on ordinary income and on long-term capital gains. The firm's cost of capital is 15 percent.Type of CapitalBudgeting DecisionOA. $34,400OB. $66,4001ExpansionOC. $80,000OD. $13,600Type of ProjectCost of new assetInstallation costsMACRS (new asset)Original cost of old assetPurchase date (old asset)Sale proceeds (old asset)MACRS (old asset)Annual net profits beforedepreciation & taxes (old)Annual net profits beforedepreciation & taxes (new) $250,000*Not applicableFor Proposal 2, the book value of the existing asset at the end of 2021 isIndependent$1,500,000$010 yearsN/A*N/AN/AN/AProposalN/A2ReplacementMutuallyExclusivewith 3$200,000$05 years$80,0001/1/2018$50,0005 years$30.0003ReplacementMutuallyExclusive$100,000with 2$300,000$15,0005 years$100,0001/1/2021$120,0005 years$25,000$175,000(See Table 11.2)

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Computer Disk Duplicators, Inc. has been considering several capital investment proposals for the year beg relevant cash flows and other relevant financial data are summarized in the table below. New assets will be fully expensed right away. In the case of a replacement decision, the total installed cost of the equipment will firm is subject to a 40 percent tax rate on ordinary income and on long-term capital gains. The firm's cost of Type of Capital Budgeting Decision 1 Expansion Independent $1,500,000 SO 10 years N/A* N/A N/A N/A Proposal Ν/Α. $250,000 2 Replacement Mutually Exclusive Type of Project Cost of new asset Installation costs MACRS (new asset) Original cost of old asset Purchase date (old asset) Sale proceeds (old asset) MACRS (old asset) Annual net profits before depreciation & taxes (old) Annual net profits before depreciation & taxes (new) *Not applicable For Proposal 2, the book value of the existing asset at the end of 2021 is with 3 $200,000 $0 3 Replacement Mutually Exclusive with 2 $300,000 $15,000 5 years $100,000 1/1/2021 $120,000 5 years $25,000 $175,000 5 years $50,000 1/1/2018 $50,000 5 years $30,000 $100,000 ..... (See Table 11.2) 4

Computer Disk Duplicators, Inc. has been considering several capital investment proposals for the year beg relevant cash flows and other relevant financial data are summarized in the table below. New assets will be fully expensed right away. In the case of a replacement decision, the total installed cost of the equipment will firm is subject to a 40 percent tax rate on ordinary income and on long-term capital gains. The firm's cost of Type of Capital Budgeting Decision 1 Expansion Independent $1,500,000 SO 10 years N/A* N/A N/A N/A Proposal Ν/Α. $250,000 2 Replacement Mutually Exclusive Type of Project Cost of new asset Installation costs MACRS (new asset) Original cost of old asset Purchase date (old asset) Sale proceeds (old asset) MACRS (old asset) Annual net profits before depreciation & taxes (old) Annual net profits before depreciation & taxes (new) *Not applicable For Proposal 2, the book value of the existing asset at the end of 2021 is with 3 $200,000 $0 3 Replacement Mutually Exclusive with 2 $300,000 $15,000 5 years $100,000 1/1/2021 $120,000 5 years $25,000 $175,000 5 years $50,000 1/1/2018 $50,000 5 years $30,000 $100,000 ..... (See Table 11.2) 4

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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Average Rate of Return The following data are accumulated by Watershed Inc. in evaluating two competing capital investment proposals: Amount of investment Useful life Estimated residual value Estimated total income over the useful life Project A Project Z $80,000 $64,000 4 years 9 years 0 0 $6,400 $20,160 Determine the expected average rate of return for each project. Round your answers to one decimal place. Project A Project Z Feedback Check My Work X % X %
Quantitative Problem: Bellinger Industries is considering two projects for inclusion in its capital budget, and you have been asked to do the analysis. Both projects' after-tax cash flows are shown on the time line below. Depreciation salvage values, net operating working capital requirements, and tax effects are all included in these cash flows. Both projects have 4-year lives, and they have risk characteristics similar to the firm's average project. Bellinger's WACC 9%. Project A Project B 0 1 -1,200 -1,200 What is Project A's payback? Do not round intermediate calculations. Round your answer to four decimal places. years 2 650 250 years 3 385 320 230 380 280 730 What is Project A's discounted payback? Do not round intermediate calculations. Round your answer to four decimal places. years What is Project B's payback? Do not round intermediate calculations. Round your answer to four decimal places. years What is Project B's discounted payback? Do not round intermediate calculations.…
Please answer g
Assume that the manager faces a capital budget constraint with respect to total dollars available today to invest in new projects, $46 million. Assume same WACC for each project. All else equal, which project or set of otherwise independent projects should the manager choose? Project NPV (in $millions) IRR Required Investment today A $ 10 14.0% $ 22 B $ 9 12.9% $ 23 C $ 11 14.1% $ 23
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Quantitative Problem: Bellinger Industries is considering two projects for inclusion in its capital budget, and you have been asked to do the analysis. Both projects' after-tax cash flows are shown on the time line below. Depreciation, salvage values, neti operating working capital requirements, and tax effects are all included in these cash flows. Both projects have 4-year lives, and they have risk characteristics similar to the firm's average project. Bellinger's WACC is 8%. 2 3 4 0 1 Project A -1,250 600 Project B -1,250 200 What is Project A's MIRR? Do not round intermediate calculations. Round your answer to two decimal places 96 Show All Feedback 450 385 240 390 290 740 Show All Feedback What is Project B's MIRR? Do not round Intermediate calculations. Round your answer to two decimal places. Chuck M En remaining)
NPV: Basic Concepts Buena Vision Clinic is considering an investment that requires an outlay of $600,000 and promises a net cash inflow one year from now of $810,000. Assume the cost of capital is 10 percent. The present value tables provided in Exhibit 19B.1 and Exhibit 19B.2 must be used to solve the following problems. Required: 1. Break the $810,000 future cash inflow into the three components shown below. Enter all your answers as positive amounts. a. The return of the original investment b. The cost of capital c. The profit earned on the investment 2. Now, compute the present value of the profit earned on the investment. $ 136,350 ✓ 600,000 ✓ 60,000 ✓ 150,000 ✓ 3. Compute the NPV of the investment. When required, round your answer to the nearest dollar. $ Compare this with the present value of the profit computed in Requirement 2. What does this tell you about the meaning of NPV? Net present value represents the present value of future profits ✓
Cash flows estimation and capital budgeting:You are the head of finance department in XYZ Company. You are considering adding a new machine to your production facility. The new machine’s base price is $11,000.00, and it would cost another $2,570.00 to install it. The machine falls into the MACRS 3-year class (the applicable MACRS depreciation rates are 33.33%, 44.45%, 14.81%, and 7.41%), and it would be sold after three years for $1,850.00. The machine would require an increase in net working capital (inventory) of $860.00. The new machine would not change revenues, but it is expected to save the firm $26,235.00 per year in before-tax operating costs, mainly labor. XYZ's marginal tax rate is 36.00%.If the project's cost of capital is 13.25%, what is the NPV of the project?Round your answer to two decimal places. For example, if your answer is $345.667 round as 345.67 and if your answer is .05718 or 5.718% round as 5.72.
Calculations to determine which – if any – additional investment opportunities should be undertaken. 1. If the projects are divisible 2. If the projects are not divisible .
Straightforward Capital Budgeting with Taxes (Non-MACRS-Based Depreciation); SensitivityAnalysis Dorothy & George Company is planning to acquire a new machine at a total cost of $30,600.The machine’s estimated life is 6 years and its estimated salvage value is $600. The company estimatesthat annual cash savings from using this machine will be $8,000. The company’s after-tax cost of capitalis 8%, and its income tax rate is 40%. The company uses straight-line depreciation (non-MACRS-based).Required1. What is this investment’s net after-tax annual cash inflow, rounded to nearest whole dollar?2. Assume that the net after-tax annual cash inflow of this investment is $5,000; what is the paybackperiod in years, rounded to 2 decimal places (e.g., 4.418 years = 4.42 years)?3. Assume that the net after-tax annual cash inflow of this investment is $5,000; what is the net present value(NPV) of this investment? Use the built-in NPV function; round your final answer to nearest whole dollar. 4.…
Halls Construction is analyzing its capital expenditure proposals for the purchase of equipment in the coming year. The capital budget is limited to $5,000,000 for the year. Laura Bentley, staff analyst at Halls, is preparing an analysis of the three projects under consideration by Caden Halls, the company's owner. Data Table A B C D 1 Project A Project B Project C 2 Projected cash outflow 3 Net initial investment $3,000,000 $2,100,000 $3,000,000 4 Projected cash inflows 5 Year 1 $1,200,000 $1,200,000 $1,700,000 6 Year 2 1,200,000 600,000 1,700,000 7 Year 3 1,200,000 500,000 200,000 8 Year 4 1,200,000 100,000 9 Required rate of return 6% 6% 6 1.. Calculate the payback period for each of the three projects. Ignore income taxes. Using the payback method, which projects should Halls choose?. Ignore income taxes. (Round your answers to…
Cash flows estimation and capital budgeting:You are the head of finance department in XYZ Company. You are considering adding a new machine to your production facility. The new machine’s base price is $10,800.00, and it would cost another $2,760.00 to install it. The machine falls into the MACRS 3-year class (the applicable MACRS depreciation rates are 33.33%, 44.45%, 14.81%, and 7.41%), and it would be sold after three years for $2,350.00. The machine would require an increase in net working capital (inventory) of $800.00. The new machine would not change revenues, but it is expected to save the firm $23,845.00 per year in before-tax operating costs, mainly labor. XYZ's marginal tax rate is 35.00%. a. What is the initial cash outlay? b. What is the free cash flow for year 1? c. What is the additional Year-3 cash flow (i.e, the after-tax salvage and the return of working capital – also called terminal value)? (please show your work in details and highlight your answers)

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