cost. The plan is to generate $21,000 of incremental revenue per additional auto in each year of operation. The controller estimates that other costs will amount to 20 cents per kilometre on an average of 40,000 kilometres per car per year She also estimates that the new business will require an investment of $10,000 in additional working capital. The firm is in a 30 percent tax bracket and uses 12 percent as a cost of capital a. Calculate the NPV (Do not round the intermediate calculations. Round the final answer to the nearest whole dollar. Negative answer should be indicated by a minus sign. Omit 5 sign in your response.) Should Elite purchase the automobiles? a. a)NPV $82,286 + 0.1% and b) NO b. a)NPV-$72,386 * 0.1% and b)NO c. a)NPV-$92,386 0.1% and b) NO da)NPV-$82,286 0.1% and b)NO e. a)NPV-$72,386 a 0.1% and b) Yes f. a)NPV $92,386 0.1% and b) Yes 20 a)NPV = -S82 286 +0.1% and bles

cost. The plan is to generate $21,000 of incremental revenue per additional auto in each year of operation. The controller estimates that other costs will amount to 20 cents per kilometre on an average of 40,000 kilometres per car per year She also estimates that the new business will require an investment of $10,000 in additional working capital. The firm is in a 30 percent tax bracket and uses 12 percent as a cost of capital a. Calculate the NPV (Do not round the intermediate calculations. Round the final answer to the nearest whole dollar. Negative answer should be indicated by a minus sign. Omit 5 sign in your response.) Should Elite purchase the automobiles? a. a)NPV $82,286 + 0.1% and b) NO b. a)NPV-$72,386 * 0.1% and b)NO c. a)NPV-$92,386 0.1% and b) NO da)NPV-$82,286 0.1% and b)NO e. a)NPV-$72,386 a 0.1% and b) Yes f. a)NPV $92,386 0.1% and b) Yes 20 a)NPV = -S82 286 +0.1% and bles

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

You are a financial analyst for a division of General Motors. Your division is considering two investment projects to increase the use of robotics in automotive assembly, each of which requires an up-front expenditure of $25 million. You estimate that the cost of capital is 10% and that the investments will produce the following after-tax cash flows (in millions of dollars): Year Project A Project B 1 $5 $20 2 10 10 3 15 8 4 20 6 a. What is the regular payback period for each of these projects? b. What is the discounted payback period for each of these projects? c. If the two projects are independent and the cost of capital is 10%, using NPV and IRR which project(s) should GM undertake? d. If the two projects are mutually exclusive and the cost of capital is 5%, using NPV which project…
Better Mousetraps has developed a new trap. It can go into production for an initial investment in equipment of $6 million. The equipment will be depreciated straight-line over 6 years but in fact, it can be sold after 6 years for $500,000. The firm believes that working capital at each date must be maintained at a level of 10% of next year's forecast sales. The firm estimates production costs equal to $1.50 per trap and believes that the traps can be sold for $4 each. Sales forecasts are given in the following table. The project will come to an end in 6 years when the trap becomes technologically obsolete. The firm's tax bracket is 40%, and the required rate of return on the project is 12%. Year: 0 1 2 Sales (millions of traps) 0.00 0.50 0.60 NPV $ (116.649) million 3 1.00 The NPV increases by 4 1.00 a. What is project NPV? (Negative amount should be indicated by a minus sign. Do not round intermediate calculations. Enter your answer in millions rounded to 3 decimal places.) $…
The CFO of Carrie Electric Auto, Mary Scofield is debating an investment. The investment is projected to earn $100,000 annually and will require the company to acquire $600,000 in assets. The following chart summarizes Mary's decision: Before After Investment Investment Sales $ 3,500,000 $ 4,100,000 Operating Income 600,000 $ 700,000 Average Operating Assets 3,000,000 3,600,000 Required: a.) Assume Mary is evaluated based on growth in the company's ROI. Compute the Return on Investment including the margin and turnover components for the company before and after the investment. Would you recommend Mary make the investment? Why (refer to margin and turnover in your answer)? b.) Assume Mary is evaluated based on growth in the company's residual income. The company's required rate of return is 15%. Compute the company's residual income before and after the investment. Would you recommend Mary make the investment? c.) Give at least one advantage and one disadvantage of using measures like…
Your company is analyzing purchase of a machine costing $5,900 today. The investment promises to add $18,500 to sales one year from today, $14,500 two years from today, and $18,000 three years from today. Incremental cash costs should consume 75% of the incremental sales. The tax rate is 30% and the company’s financing rate is 8.2%. The investment cost is depreciated to zero over a 3-year straight-line schedule. What is the IRR for the project?
Bottoms up Diaper Service is considering the purchase of a new industrial washer. It can purchase the washer for $3,600 and sell its old washer for $900. The new washer will last for 6 years and save $1,100 a year in expenses. The opportunity cost of capital is 20% and the firms tax rate is 21%. a) if the firm uses straight-line depreciation over a 6 year life, what are the cash flows of the project in years 0 to 6? The new washer will have zero salvage value after 6 years, and the old washer is fully depreciated. (negative amounts should be indicated by a minus sign.) annual operating cash flow in year 0? annual operating cash flow in years 1 to 6? b) what is the project NPV? (Do not round intermediate calculations. round answer to 2 decimal places. c) what is the NPV if the investment is entitled to immediate 100% bonus depreciation? (do not round intermediate calculations. round your answer to 2 decimals places.
You are considering adding a new product to one of your firm’s existing product lines which will generate an additional $200,000 in sales per year and will have a margin of 50% (same as the existing group margin). This will entail an increase in Net Working Capital of $10,000 and an investment in property, plant, and equipment of $50,000 per year. Assuming the company pays no tax and any depreciation in that year is negligible, the annual change in Unlevered Free Cash Flows resulting from the addition of the product is: a $40,000 b $50,000 c $90,000 d $100,000 e $10,000
ou are preparing to produce some goods for sale. You will sell them in one year and you will incur costs of $ 76,000 immediately. If your cost of capital is 7%. What is the minimum dollar amount you need to sell the goods for in order for this to be a non-negative NPV? Question content area bottom Part 1 The minimum dollar amount is $XXX enter your response here .
Abbondante Multinational Inc. has to decide between a gas powered and an electric - powered forklift. The company will buy only one forklift. The gas - powered forklift costs $17,600 and has cash flows of $5,700 per year for 8 years. The electric - powered forklift will cost $ 22,100 and has cash flows of $5,900 per year for 6 years. The cost of capital is 9.57%. Calculate the NPV and the IRR for each forklift. Which one should the company select? Why? Calculate the profitability index for both. Which one should the company select? Why?
Sanders Inc. has developed a new product line that they believe will revolutionize their industry and ensure they remain an industry leader. The projected sales are as follows: Year Unit Sales 1 97,500 2 112,000 3 120,000 4 135,000 5 103,000 The project will require $750,000 in net working capital to start and additional net working capital investments each year equal to 10 percent of the projected increase in sales for the following year. Total fixed assets are $4,100,000 per year. Variable costs will be $215, and units will sell for $335 each. The company will need to purchase equipment for $15,000,000 which will be depreciated as a seven-year MACRS property. In five years, the equipment can be sold for $3,500,000. The company is in the 21 percent tax bracket and has a 14 percent required return on their projects. The company will use land that was purchased for $1,800,000 three years ago. The land could be sold today for $2,400,000 and it…
A store will cost $750,000 to open. Variable costs will be 38% of sales and fixed costs are $250,000 per year. The investment costs will be depreciated straight-line over the 19 year life of the store to a salvage value of zero. The opportunity cost of capital is 11% and the tax rate is 25%. Find the operating cash flow each year if sales revenue is $750,000 per year. Enter your response below. Correct response: 171, 118.42+ - 10Using an operating cash flow of 171, 118.42, calculate the Net Present Value. Should the store be opened? Enter your response for net present value below. 591, 447.64 Correct response: 591, 447.65 + 100 Find the net present value break - even level of sales revenue Enter your response below.
You are a consultant who was hired to evaluate a new product line for Markum Enterprises. The upfront investment required to launch the product line is $10 million. The product will generate free cash flow of $750,000 the first year, and this free cash flow is expected to grow at a rate of 3% per year. Markum has an equity cost of capital of 11.3%, a debt cost capital of 4.33%, and a tax rate of 25%. Markum maintains a debt-equity ratio of 0.50. How much debt will Markum initially take on as a result of launching this product line? a) $2.34 million b) $4.29 million c) $3.70 million d) $2.94 million e) None of the answers is correct
into.com has developed a powerful new server that would be used for corporations’ Internet activities. It would cost $25 million at Year 0 to buy the equipment necessary to manufacture the server. The project would require net working capital at the beginning of each year in an amount equal to 12% of the year’s projected sales; for example, NWC0 = 12%(Sales1 ). The servers would sell for $21,000 per unit, and Pinto believes that variable costs would amount to $15,000 per unit. After Year 1, the sales price and variable costs will increase at the inflation rate of 2.5%. The company’s nonvariable costs would be $1.5 million at Year 1 and would increase with inflation. The server project would have a life of 4 years. If the project is undertaken, it must be continued for the entire 4 years. Also, the project’s returns are expected to be highly correlated with returns on the firm’s other assets. The firm believes it could sell 2,000 units per year. The equipment would be depreciated over a…

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

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

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