Delia Landscaping is considering a new 4-year project. The necessary fixed assets will cost $171,000 and be depreciated on a 3-year MACRS and have no salvage value. The MACRS percentages each year are 33.33 percent, 44.45 percent, 14.81 percent, and7.41 percent, respectively. The project will have annual sales of $108,000, variable costs of $27,650, and fixed costs of $12,250.The project will also require net working capital of $2,850 that will be returned at the end of the project. The company has a taxrate of 21 percent and the project's required return is 10 percent. What is the net present value of this project?Multiple Choice$19,125$28.518$17,031$14,520$15,840

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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 $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.)
A proposed cost-saving device has an installed cost of $795,000. The device will be used in a five-year project but is classified as three-year MACRS property for tax purposes (MACRS schedule). The required initial net working capital investment is $79,000, the tax rate is 22 percent, and the project discount rate is 11 percent. The device has an estimated Year 5 salvage value of $121,000. What level of pretax cost savings do we require for this project to be profitable? Note: Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16. Answer is complete but not entirely correct. Pretax cost savings $ 194.191.50 X
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
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…
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…
A Company is considering the development of a plan. The company estimates that the plant and equipment would require an initial of $12 million and sales revenue of $3.0 million a year is expected over the project lifespan of 6 years. The plant and equipment will be fully depreciated using the straight-line method with zero salvage value. Yearly variable costs are $25,000 and fixed costs are $40,000, respectively. The project’s cost of capital is 12% and a corporate tax rate of 30%. Using NPV should this project be undertaken?
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
Eggz, Incorporated, is considering the purchase of new equipment that will allow the company to collect loose hen feathers for sale. The equipment will cost $490,000 and will be eligible for 100 percent bonus depreciation. The equipment can be sold for $84,000 at the end of the project in 5 years. Sales would be $327,000 per year, with annual fixed costs of $60,000 and variable costs equal to 35 percent of sales. The project would require an investment of $51,000 in NWC that would be returned at the end of the project. The tax rate is 23 percent and the required return is 8 percent. Calculate the NPV of this project. Note: Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16. NPV 348437.32
Chadron Sports is considering adding a miniature golf course to its facility. The course would cost $138,000, would be depreciated on a straight-line basis over its five-year life, and would have a zero salvage value. The estimated income from the golfing fees would be $72,000 a year with $24,000 of that amount being variable cost. The fixed cost would be $11,600. In addition, the firm anticipates an additional $14,000 in revenue from its existing facilities if the golf course is added. The project will require $7,000 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 12 percent and a tax rate of 34 percent? O $14,438.78 $12,708.48 O $11,757.49 O $10,631.16 O $14,900.41
Gateway Communications is considering a project with an initial fixed assets cost of $1.58 million that will be depreciated straight-line to a zero book value over the 9-year life of the project. At the end of the project the equipment will be sold for an estimated $237,000. The project will not change sales but will reduce operating costs by $393,000 per year. The tax rate is 34 percent and the required return is 11.2 percent. The project will require $50,500 in net working capital, which will be recouped when the project ends. What is the project's NPV? Multiple Choice $242,544 $202,140 $250,629 $233,215 $193,351
Gateway Communications is considering a project with an initial fixed assets cost of $1.47 million that will be depreciated straight-line to a zero book value over the 9-year life of the project. At the end of the project the equipment will be sold for an estimated $248,000. The project will not change sales but will reduce operating costs by $415,000 per year. The tax rate is 21 percent and the required return is 12.3 percent. The project will require $56,000 in net working capital, which will be recouped when the project ends. What is the project's NPV? Multiple Choice O $256,094 $584,027 $193,231 $238,300 $247,833
A company is considering a new 6-year project that will have annual sales of $234,000 and costs of $146,000. The project will require fixed assets of $265,000, which will be depreciated on a 5-year MACRS schedule. The annual depreciation percentages are 20.00 percent, 32.00 percent, 19.20 percent, 11.52 percent, 11.52 percent, and 5.76 percent, respectively. The company has a tax rate of 34 percent. What is the operating cash flow for Year 2? a. 68460 b. 86912 c. 58752 d. 73097 e. 75379

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