Delia Landscaping is considering a new 4-year project. The necessary fixed assets will cost $157,000 and be depreciated on a 3-year MACRS and haveno salvage value. The MACRS percentages each year are 33.33 percent, 44 45 percent, 14 81 percent, and 7.41 percent, respectively. The project willhave annual sales of $98,000, variable costs of $27,400, and fixed costs of $12,000. The project will also require net working capital of $2,600 that willbe returned at the end of the project. The company has a tax rate of 21 percent and the project's required return is 10 percent. What is the net presentvalue of this project?Multiple Choice$3112$3.395$16.36056718$4.645

Npv is also known as Net present value. It is a capital budegting technique which helps in decision…

Answered: Delia Landscaping is considering a new…

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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We are evaluating a project that costs $853,000, has a life of 11 years, and has no salvage value. Assume that depreciation is straight-line to zero over the life of the project. Sales are projected at 106,000 units per year. Price per unit is $39, variable cost per unit is $24, and fixed costs are $856,412 per year. The tax rate is 22 percent, and we require a return of 15 percent on this project. Calculate the accounting break-even point. What is the degree of operating leverage at the accounting break-even point? Calculate the base-case cash flow. Calculate the NPV.
Wettway Sailboat Corporation is considering whether to launch its new Margo-class sailboat. The selling price will be $41,000 per boat. The variable costs will be about half that, or $20,000 per boat, and fixed costs will be $465,000 per year. The total investment needed to undertake the project is $3,100,000. This amount will be depreciated straight-line to zero over the 5-year life of the equipment. The salvage value is zero, and there are no working capital consequences. Wettway has a required return of 11 percent on new projects. FC + OCF-TCX D 1-TC P-v Use the above expression to find the cash, accounting, and financial break-even points for Wettway Sailboat. Assume a tax rate of 21 percent. (Do not round intermediate calculations and round your answers to 2 decimal places, e.g., 32.16.) Cash break-even Accounting break-even Financial break-even
Nikul
We are evaluating a project that costs $735, 200, has an eight year life, and has no salvage value. Assume that depreciation is straight - line to zero over the life of the project. Sales are projected at 80, 000 units per year. Price per unit is $48, variable cost per unit is $33, and fixed costs are $730, 000 per year. The tax rate is 22 percent, and we require a return of 12 percent on this project. Suppose the projections given for price, quantity, variable costs, and fixed costs are all accurate to within \pm 15 percent. Calculate the best - case and worst case NPV figures. (A negative answer should be indicated by a minus sign. Do not round intermediate calculations and round your answers to 2 decimal places, e. g., 32.16.)
Wettway Sailboat Corporation is considering whether to launch its new Margo-class sailboat. The selling price will be $48,000 per boat. The variable costs will be about half that, or $27,000 per boat, and fixed costs will be $535,000 per year. The total investment needed to undertake the project is $3,800,000. This amount will be depreciated straight-line to zero over the 6-year life of the equipment. The salvage value is zero, and there are no working capital consequences. Wettway has a required return of 18 percent on new projects. FC+ OCF-TCXD 1-TC Q== P-v Use the above expression to find the cash, accounting, and financial break-even points for Wettway Sailboat. Assume a tax rate of 23 percent. (Do not round intermediate calculations and round your answers to 2 decimal places, e.g., 32.16.) Answer is complete but not entirely correct. Cash break-even Accounting break-even Financial break-even 25.47 55.63 83.50
We are evaluating a project that costs $604,000, has an 8-year life, and has no salvage value. Assume that depreciation is straight-line to zero over the life of the project. Sales are projected at 55,000 units per year. Price per unit is $36, variable cost per unit is $17, and fixed costs are $685,000 per year. The tax rate is 21 percent and we require a return of 15 percent on this project. Suppose the projections given for price, quantity, variable costs, and fixed costs are all accurate to within ±10 percent. Calculate the best-case and worst-case NPV figures. (A negative answer should be indicated by a minus sign. Do not round intermediate calculations and round your answers to 2 decimal places, e.g., 32.16.)
Ursus, Incorporated, is considering a project that would have a five-year life and would require a $2,400,000 investment in equipment. At the end of five years, the project would terminate and the equipment would have no salvage value. The project would provide net operating income each year as follows (Ignore income taxes.): Sales $ 3,500,000 Variable expenses 2,100,000 Contribution margin 1,400,000 Fixed expenses: Fixed out-of-pocket cash expenses $ 600,000 Depreciation 480,000 1,080,000 Net operating income $ 320,000 Click here to view Exhibit 12B-1 and Exhibit 12B-2, to determine the appropriate discount factor(s) using the tables provided. All of the above items, except for depreciation, represent cash flows. The company's required rate of return is 14%. Required: a. Compute the project's net present value. (Round your intermediate calculations and final answer to the nearest whole dollar amount.) b. Compute the project's internal rate of…
Outdoor Sports is considering adding a putt-putt golf course to its facility. The course would cost $168,000, would be depreciated on a straight-line basis over its 4-year life, and would have a zero salvage value. The sales would be $90,300 a year, with variable costs of $27,450 and fixed costs of $12,050. In addition, the firm anticipates an additional $15,700 in revenue from its existing facilities if the putt putt course is added. The project will require $2,650 of net working capital, which is recoverable at the end of the project. What is the net present value of this project at a discount rate of 11 percent and a tax rate of 21 percent?
Isle Royale Solutions is considering a project that would have a eight-year life and would require a $2,904,000 investment in equipment. At the end of eight years, the project would terminate and the equipment would have no salvage value. The project would provide net operating income each year as follows (Ignore income taxes.): Use the documents provided in the instructions to determine the appropriate discount factor(s). All of the above items, except for depreciation, represent cash flows. The company's required rate of return is 11%. Compute the project's net present value. Compute the project's internal rate of return. Compute the project's simple rate of return. Compute the project's payback period. Isle Royale Solutions is considering a project that would have a eight-year life and would require a $2,904,000 investment in equipment. At the end of eight years, the project would terminate and the equipment would have no salvage value. The project would provide net operating income…
Gateway Communications is considering a project with an initial fixed assets cost of $1.63 million that will be depreciated straight-line to a zero book value over the 10-year life of the project. At the end of the project the equipment will be sold for an estimated $233,000. The project will not change sales but will reduce operating costs by $384,000 per year. The tax rate is 24 percent and the required return is 10.8 percent. The project will require $48,500 in net working capital, which will be recouped when the project ends. What is the project's NPV? Multiple Choice $399,054 $367,946 $428,850 $415,017 $351,948
X Corp plans to invest in new equipment costing 290,000 with no salvage value. The project will save 160,000 in cash operating cost for each of the next 3 years, at which time the machine can still be sold at 40,000 cash (even if the machine is fully depreciated). Tax rate is 40%. The minimum desired rate of return is 16%. Assuming that at the end of year 2, overhaul cost to be incurred by X is 5,000 (tax deductible). SLM is used for tax purposes. Pls use up to 4 decimal places for the PVF. What is the NPV? A• 17,573.20 B• 8,589.60 C• 5,114.20 D• 9,231.40
Al’ain Corporation is studying a project that would have a ten-year life and would require a $420,000 investment in equipment that has no salvage value. The project would provide net operating income each year as follows for the life of the project: Sales $ 400,000 Less cash variable expenses 100,000 Contribution margin 300,000 Less fixed expenses: Fixed cash expenses $ 160,000 Depreciation expenses 40,000 200,000 Net operating income $ 100,000 The company's required rate of return is 12%. The payback period for this project is closest to: 3 years 2 years 3.5 years 5 years

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