Cullumber, Inc. is considering the purchase of a warehouse directly across the street from its manufacturing plant. Cullumbercurrently warehouses its inventory in a public warehouse across town. Rent on the warehouse and delivering and picking up inventorycost Cullumber $50880 per year. The building will cost Cullumber $477000. Cullumber will depreciate the building for 20 years. At theend of 20 years, the building will have a $132500 salvage value. Cullumber's required rate of return is 12%.Click here to view the factor table.Using the present value tables, the building's net present value is (round to the nearest dollar)O $1017600.O $46077.O $393783.O $-83217.

NPV (Net Present Value) is a financial metric used to evaluate the profitability of an investment by…

Answered: Cullumber, Inc. is considering the…

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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Hurzdan, Inc., is considering the purchase of a $410,000 computer with an economic life of five years. The computer will be fully depreciated over five years using the straight-line method. The market value of the computer will be $74,000 in five years. The computer will replace five office employees whose combined annual salaries are $119,000. The machine will also immediately lower the firm’s required net working capital by $94,000. This amount of net working capital will need to be replaced once the machine is sold. The corporate tax rate is 24 percent. The appropriate discount rate is 14 percent. Calculate the NPV of this project.
Builtrite is considering the purchase of a new five-year machine worth $90,000. It will cost another $10,000 to install the machine and Builtrite will need to keep an extra $9,000 in inventory on hand due to the machine's efficiency. The current machine being used is 5 years old and originally cost $60,000 and is being depreciated down to zero over a 10-year period. If the current machine were sold today, it could be sold for $45,000. In five years, the new machine is estimated to have a salvage value of $36,000. Two employees will need to be trained for the new machine at a cost of $4000. The new machine is expected to produce $80,000 in annual savings. Builtrite is in the 34% tax bracket. What is the terminal cash flow for the new machine? O $23.760 O $31,800 O $32,760
The Ocean City water park is considering the purchase of a new log flume ride. The cost to purchase the equipment is $8,000,000, and it will cost an additional $475,000 to have it installed. The equipment has an expected life of 6 years, and it will be depreciated using a MACRS 7-year class life. Management expects to run about 150 rides per day, with each ride averaging 35 riders. The season will last for 120 days per year. In the first year, the ticket price per rider is expected to be $5.25, and it will be increased by 4% per year. The variable cost per rider will be $1.65, and total fixed costs will be $525,000 per year. After six years, the ride will be dismantled at a cost of $245,000 and the parts will be sold for $600,000. The cost of capital is 8.5%, and its marginal tax rate is 25%. a. Calculate the initial outlay, annual after-tax cash flow for each year, and the terminal cash flow.
Corf's Dog House is considering the installation of a new computerized pressure cooker for hot dogs. The cooker will increase sales by $9,500 per year and will cut annual operating costs by $03.300. The system will cost $50100 to purchase and install. This system is expected to have a 5-year life and will be depreciated to zero using straight-line depreciation and have no salvage value. The tax rate is 40 percent and the required return is 30.8 percent. What is the NPV of purchasing the pressure cooker? Mutiple Choice O ● O $23,047 -40335 $5.603 -$2674 $6300
J. F. Manning Metal Company is considering the purchase of a new millingmachine during year 0. The machine's base price is $135,000, and it will cost another $15,000 to modify the machine for special use by the firm, resulting in a $150,000 cost base for depreciation. The machine falls into the MACRS seven-year property class. The machine will be sold after three years for $80,000 (actual dollars). Use of the machine will require an increase in net working capital (inventory) of $10,000 at the beginning of the project year. The machine will have no effect on revenues, but it is expected to save the firm $80,000 (today's dollars) per year in before-tax operating costs-mainly labor. The firm's marginal tax rate is 40%, and this rate is expected to remain unchanged over the project's duration. However, the company expects that the labor cost will increase at an annual rate of 5% and that the working-capital requirement will grow at an annual rate of 8% caused by inflation. The selling…
The Ocean City water park is considering the purchase of a new log flume ride. The cost to purchase the equipment is $8,000,000, and it will cost an additional $475,000 to have it installed. The equipment has an expected life of 6 years, and it will be depreciated using a MACRS 7-year class life. Management expects to run about 150 rides per day, with each ride averaging 35 riders. The season will last for 120 days per year. In the first year, the ticket price per rider is expected to be $5.25, and it will be increased by 4% per year. The variable cost per rider will be $1.65, and total fixed costs will be $525,000 per year. After six years, the ride will be dismantled at a cost of $245,000 and the parts will be sold for $600,000. The cost of capital is 8.5%, and its marginal tax rate is 25%. Using Goal Seek, calculate the minimum ticket price that must be charged in the first year in order to make the project acceptable.
On January 1, 2024, reliable delivery service purchased a truck at a cost of $65,000. Before placing the truck in service, reliable spent $2500 painting it $2500 replacing tires, and $9500 over hauling the engine the truck should remain in service for five years and have a residual value of $6000. the trucks annual mileage is expected to be 23,000 miles in each of the first four years and 13,000 miles in the fifth year – 105,000 miles in total. And deciding which depreciation method to use Harold Parker, the general manager, requesting depreciation schedule for each of the depreciation methods.( straight line units of production and double declining balance.) prepare the schedules.
Yoga Ltd is requesting a purchase of an upgraded class streaming system with an installed cost of $574,000. This cost will be depreciated straight-line to zero over the project's five-year life, at the end of which the system can be sold tor $20,000. The old system will be sold off for $10,000. The system will generate new tuition of $116,000 per year with negligible changes to operating costs. In year three the software license will need to be renewed at a cost of 15,000. The system requires an initial investment in net working capital of $15,000. If required rate of return is 10 percent, what is the present value of net cash flow for Year 3 (rounded to a whole number)?
Jarrod has a small business where he produces ping pong balls. He has an opportunity to update his production process with a piece of equipment that costs $46,000 on June 10, 2023. A new trimming machine for when the ball is being formed. The equipment is expected to have a 12-year service life. The trimming machine also has an estimated residual value of $9,000. Determine for the year 2022 the depreciation expense for each of the methods listed. 1.Straight line 2. Sum-of-the-years'-digits 3. Double-declining balance
Benford Inc. is planning to open a new sporting goods store in a suburban mall. Benford will lease the needed space in the mall. Equipment and fixtures for the store will cost $450,000 and be depreciated to $0 over a 5-year period on a straight-line basis. The new store will require Benford to increase its net working capital by $450,000 at time 0.First-year sales are expected to be $1.05 million and to increase at an annual rate of 8 percent over the expected 10-year life of the store. Operating expenses (including lease payments but excluding depreciation) are projected to be $850,000 during the first year and to increase at a 7 percent annual rate. The salvage value of the store’s equipment and fixtures is anticipated to be $13,000 at the end of 10 years. Benford’s marginal tax rate is 40 percent. Calculate the store’s net present value, using an 18 percent required return. Use Table II to answer the question. Round your answer to the nearest dollar.$ Should Benford accept the…
On January 2, 2021, Twilight Hospital purchased a $92,000 special radiology scanner from Blossom Inc. The scanner had a useful life of 4 years and was estimated to have no disposal value at the end of its useful life. The straight-line method of depreciation is used on this scanner. Annual operating costs with this scanner are $104,000. Approximately one year later, the hospital is approached by Dyno Technology salesperson, Jacob Cullen, who indicated that purchasing the scanner in 2021 from Blossom Inc. was a mistake. He points out that Dyno has a scanner that will save Twilight Hospital $24,000 a year in operating expenses over its 3-year useful life. Jacob notes that the new scanner will cost $109,000 and has the same capabilities as the scanner purchased last year. The hospital agrees that both scanners are of equal quality. The new scanner will have no disposal value. Jacob agrees to buy the old scanner from Twilight Hospital for $43,000. (a) If Twilight Hospital sells its old…
ou have been asked by the president of your company to evaluate the proposed acquisition of a new special-purpose truck for $120,000. The truck falls into the MACRS 7-year class, and it will be sold after 7 years for $12,000. Use of the truck will require an increase in NWC (spare parts inventory) of $4,200. The truck will have no effect on revenues, but it is expected to save the firm $52,000 per year in before-tax operating costs, mainly labor. The firm's marginal tax rate is 21 percent. What will the operating cash flows for this project be during year 2?

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