View PoliciesCurrent Attempt in ProgressFITCO is considering the purchase of new equipment. The equipment costs $347000, and an additional $115000 is needed to install it.The equipment will be depreciated straight-line to zero over a 5-year life. The equipment will generate additional annual revenues of$271000, and it will have annual cash operating expenses of $84000. The equipment will be sold for $82000 after 5 years. Aninventory investment of $70000 is required during the life of the investment. FITCO is in the 40 percent tax bracket, and its cost ofcapital is 11 percent. What is the project NPV?O $73326.$90020.O $41987.O $57327.

Net Present Value (NPV) is a financial measure that calculates the present value of future cash…

Answered: Current Attempt in P FITCO is…

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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This alternative involves purchasing new aquaculture equipment for $500,000, with a forecasted useful life of 10 years, to replace old equipment that could be disposed of at an estimated salvage value of $60,000. If GBEI acquires the new equipment, it could take on a bigger service area that was not previously feasible, thus leading to an annual increase in sales of $200,000. With the improvements in technology built into the equipment, GBEI’s annual operating expenses would be reduced by $100,000. Operation of the new equipment would require GBEI to maintain inventory levels $100,000 higher than usual over the life of the project. The new equipment could be sold at the end of its useful life for $40,000. Assume straight line depreciation. Assume gross margin on incremental revenues is 60%. The cost of capital for this investment is 11.65%. 1. Calculate the NPV, Payback Period, and Profitability Index of the purchase of the new aquaculture equipment.
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