Consider a processing center that can be purchased at $25000 today and will have a 10 years of useful lifetime, in the end of which the processing center is expected to have a salvage value of $5000. The annual maintenance costs are expected to start at $600 at the end of the first year, and each year thereafter, will increase by 5% compared to the previous year. Instead of owning this processing center, if we intend to lease it for 10 years at a constant annual rental, what is the fair rental amount under an 8% MARR that compounds annually? Choose the closest value to your answer. $4990.39 B) $4112.35 c) $4344.76 $4776.33 $4501.62

Consider a processing center that can be purchased at $25000 today and will have a 10 years of useful lifetime, in the end of which the processing center is expected to have a salvage value of $5000. The annual maintenance costs are expected to start at $600 at the end of the first year, and each year thereafter, will increase by 5% compared to the previous year. Instead of owning this processing center, if we intend to lease it for 10 years at a constant annual rental, what is the fair rental amount under an 8% MARR that compounds annually? Choose the closest value to your answer. $4990.39 B) $4112.35 c) $4344.76 $4776.33 $4501.62

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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You have been given the following information on a project: It has a 3-year lifetime The initial investment in the project will be $28 million, and the investment will be depreciated straight-line, down to a salvage value of $6 million at the end of the fourth year. The revenues are expected to be $20 million next year and to grow 6% a year after that for the remaining two years. The cost of goods sold, excluding depreciation, is expected to be 53% of revenues. The tax rate is 0.36. Estimate the after-tax return on capital, by year, to find the average for the project. (Round answer to four decimal places.)
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An injection molding machine can be purchased and installed for $75,000. It has a GDS recovery period of five years under the MACRS, but it will only be kept in service for four years. The net savings that can be attributed to this machine is estimated to be $25,000 in the first year,and to decrease by $2,500 each year in the following years. It is believed that the machine can be sold for $30,000 at the end of year four. An effective income tax rate of 35% is used by the company and the after tax MARR equals 15%. Should a recommendation be made to purchase the machine? Why or why not?
Consider a 200,000 SF office building complex, with NOI of $25/SF/year with rents and operating expenses paid in arrears (at the end of the year) annually, and no capital expenditures. The rent will increase by 3% per year. The discount rate is 10%/year. a. What is the value of this office building, assuming that the building is sold at the end of year 10 and the cap rate at that time is expected to be 10%? What is the cap rate at time 0? b. What is the value of this office building, assuming that the building will be held and rented indefinitely (perpetually)? What is the implied cap rate at time 0? c. What is the value if the rents are paid in advance (at the beginning of the year) and the building is rented perpetually?
You are the design consultant comparing two pump options. The first option has an installation cost of $36,000 and lasts 40 years with $1,000 maintenance every 10 years. The second option has an installation cost of $30,000 and lasts 40 years if a large refurbishment of $15,000 is conducted after 20 years. Assuming a 5% annual interest rate, what is the difference in present value between options 1 and 2? (Option 1 – Option 2) a. $1,711 b. $2,710 C. -$6,000 d. $1,569
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Your firm is considering purchasing an old office building with an estimated remaining service lifeof 25 years. Recently, the tenants signed a long-term lease, which leads you to believe that the currentrental income of $250,000 per year will remain constant for the first five years. Then the rental incomewill increase by 10% for every five-year interval over the remaining life of the asset. That is, the annualrental income would be $275,000 for years 6 through 10, $302,500 for years 11 through 15, $332,750for years 16 through 20, and $366,025 for years 21 through 25. You estimate that operating expenses,including income taxes, will be $85,000 for the first year and that they will increase by $5,000 each yearthereafter. You also estimate that razing the building and selling the lot on which it stands will realize anet amount of $50,000 at the end of the 25-year period. If you had the opportunity to invest yourmoney elsewhere and thereby earn interest at the rate of 12% per annum, what…

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