DEF Corporation has projected that their performance for the next five years will result to thefollowing:Cash OperatingExpensesP30,000,00033,000,00036,300,00039,930,00043,920,000YearRevenueP 50,000,00055,000,00060,500,00066,550,00073,210,000134The corporation owns a property originally acquired at P50 million with useful life of 10 years.The terminal value was assumed based on the growth rate of the cash flows. Annual capitalinvestment requirement is at P2 million. Income tax rate is at 30%. The required rate of returnfor this business is 14%.Compute the following:1. Terminal value2. Net cash flows to the firm3. Discounted net cash flows to the firm

Useful life is 10 years CAPEX is P2million Orginal purchase price is P50million Tax rate is 30%…

Answered: DEF Corporation has projected that…

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

An investment of $800,000 is made in equipment that qualifies as 3-year equipment for MACRS-GDS depreciation. The BTCF profile for the investment is given below, including a $200,000 salvage value at the end of the 5-year planning horizon. A 25% tax rate applies and the after-tax MARR is 8%. Determine the ATCF for each year and the after-tax PW, AW, IRR, and ERR.
Grove Media plans to acquire production equipment for $845,000 that will be depreciated for tax purposes as follows: year 1, $329,000; year 2, $189,000; and in each of years 3 through 5, $109,000 per year. A 10 percent discount rate is appropriate for this asset, and the company’s tax rate is 20 percent. Required: Compute the present value of the tax shield resulting from depreciation. 2. Compute the present value of the tax shield from depreciation assuming straight-line depreciation ($169,000 per year).
2
In Year 1, Darw Inc. purchased equipment with an expected useful life of 5 years. The initial cost of the equipment was $85,000. Darw Inc.cost of capital is 12%. At the time it purchased the equipment, Darw Inc. projected the following cash inflows from use of the equipment: Year Projected Cash Inflow 1 $20,000 2 $30,000 3 $35,000 4 $25,000 5 $15,000 At the end of Year 5, the equipment had reached the end of its useful life. Darw Inc.determined that it had actually generated the following cash flows: Year Actual Cash Inflow $10,000 $20,000 $30,000 $30,000 $30,000 2. Calculate the net present value that the equipment achieved, based on the actual cash inflows.
A company is considering a 3-year project with an initial cost of $876,000. The project will not directly produce any sales but will reduce operating costs by $195,000 a year. The equipment is classified as MACRS 7-year property. The MACRS table values are .1429, .2449, .1749, .1249, .0893, .0892, .0893, and .0446 for Years 1 to 8, respectively. At the end of the project, the equipment will be sold for an estimated $410,000. The tax rate is 25 percent and the required return is 10 percent. An extra $42,000 of inventory will be required for the life of the project. What is the total cash flow for Year 3? $638,821.80 $629,821.80 $620,821.80 $611,821.80 $602,821.80
Nylon have assigned $1.5 million dollars to purchase the asset(s). Nylon's WACC is 8%. Years Asset L Asset M Asset N Initial Costs $700,000 $800,000 $500,000 Expected Cash Inflows: 2018 300,000 200,000 2019 250,000 200,000 200,000 2020 200,000 200,000 200,000 2021 150,000 200,000 150,000 2022 200,000 150,000 Requirement: Recommend which Asset(s) the company should purchase based on the Payback and Net Present Value Capital Budgeting Techniques. If the funds allow for the purchase of more than one asset, rank them from most favourable to least and select the ones to be purchased.
You forecast the company RIO will have a sustainable ROE of 15% in the future, similar to the industry average of 15%. The company has a dividend payout ratio of 50% versus industry average of 50%. The company had less debt and operation leverage compare to industry, as a result , RIO has a beta of 1.8 versus the industry average of 2. Based on these information, should the company RIO have a higher or lower PE ratio than the industry average ? Given a risk free rate of 2% and market risk premium of 8%, what is RIO’s “intrinsic” forward PE ratio based on formula?
SHCJ Research Laboratory requires P3,500,000 for original construction, P500,000at the end of every year for the first 6 years and then P600,000 each year thereafterfor operating and maintenance expenses, and P2,000,000 every 10 years forreplacement of equipment with interest at 12% per annum. Determine thecapitalized cost of the said research laboratory.
A corporation can buy a machine for 15,000$ with life of five years and a salvage value (selling price of the machine at end of life of the project) of 1,550$. Net revenues per year are expected to be 7,000$. MARR for this corporation is 15%. Should the corporation invest in this machine? Solve by present worth method. detailed answer without using excel
Montego Production Company is considering an investment in new machinery for its factory. Various information about the proposed investment follows: Initial investment $ 860,000 Useful life 6 yearsSalvage value $ 20,000 Annual net income generated $ 66,000 Montego’s cost of capital 11% Assume straight line depreciation method is used. 4. Recalculate Montego's NPV assuming its cost of capital is 12 percent. (Future Value of $1, Present Value of $1, Future Value Annuity of $1, Present Value Annuity of $1.) Note: Use appropriate factor(s) from the tables provided. Negative amount should be indicated by a minus sign. Round your answer to 2 decimal places. annually:4.1114, other: 0.5066 Help Montego evaluate this project by calculating each of the following: Required:2. Payback period.
1. Green Rose Inc. is considering these following investments for year 2022: Machine A Machine B Machine C Initial amount 450,000 375,000 425,000 Salvage Value 75,000 67,000 58,000 Cost savings 66,730 73,425 63,950 The following cost are associated to each of the machines: • Inspection cost 3,000 • Installation cost 3.500 • Warranties 2,700 • Testing cost 4,300 • Training 4,500 a) Determine the Net investment of each Machine. b) Determine the accounting rate of return. c) Which of these investments would Green Rose Inc. purse if the required rate of return is 18%?
The net investment of decision is P276,200 which includes P247,500 capitalizable cost of machine and P50,000 of additional net working capital. The machine has a useful life of 5 years and a salvage value of P27,500. The annual operating cash inflow and outflow from this decision are P140,000 and P60,000 respectively. Assume a tax rate of 40% and a cost of capital of 10%. Requirement: 1. After-tax net annual cashflow 2. Return of capital at the end of the investment 3. Net present value of the investment decision? 4. Profitability index of the investment decision

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

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