Delia Landscaping is considering a new 4-year project. The necessary fixed assets will cost $163,000 andbe depreciated on a 3-year MACRS and have no salvage value. The MACRS percentages each year are33.33 percent, 44.45 percent, 14.81 percent, and 7.41 percent, respectively. The project will have annualsales of $100,000, variable costs of $27,450, and fixed costs of $12,050. The project will also require networking capital of $2,650 that will be returned at the end of the project. The company has a tax rate of 21percent and the project's required return is 11 percent. What is the net present value of this project?Multiple Choice$6,223$2,961$4,140$12,382$2,714

One approach to capital budgeting is the net present value. Using net present value, one may…

Delia Landscaping is considering a new 4-year project. The necessary fixed be depreciated on a 3-year MACRS and have no salvage value. The MACRS 33.33 percent, 44.45 percent, 14.81 percent, and 7.41 percent, respectively. T sales of $100,000, variable costs of $27,450, and fixed costs of $12,050. The working capital of $2,650 that will be returned at the end of the project. The percent and the project's required return is 11 percent. What is the net prese Multiple Choice

Delia Landscaping is considering a new 4-year project. The necessary fixed be depreciated on a 3-year MACRS and have no salvage value. The MACRS 33.33 percent, 44.45 percent, 14.81 percent, and 7.41 percent, respectively. T sales of $100,000, variable costs of $27,450, and fixed costs of $12,050. The working capital of $2,650 that will be returned at the end of the project. The percent and the project's required return is 11 percent. What is the net prese Multiple Choice

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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Flounder Manufacturing Company is considering three new projects, each requiring an equipment investment of $23,800. Each project will last for 3 years and produce the following cash flows. Year 1 2 3 Total AA $7,600 $10,300 9,600 15,600 (a) $32,800 BB Payback period 10,300 Click here to view PV tables. 10,300 Most desirable $30,900 The salvage value for each of the projects is zero. Flounder uses straight-line depreciation. Flounder will not accept any project with a payback period over 2.2 years. Flounder's minimum required rate of return is 12%. Least desirable CC $11,600 10,600 9,600 Compute each project's payback period. (Round answers to 2 decimal places, e.g. 52.75.) $31,800 AA years BB Indicating the most desirable project and the least desirable project using this method. years CC years
Perit Industries has $155,000 to invest. The company is trying to decide between two alternative uses of the funds. The alternatives are: Cost of equipment required Working capital investment required Annual cash inflows Salvage value of equipment in six years Life of the project $ 155,000 Project A $ 0 Project B $ 0 $ 155,000 $ 25,000 $ 8,600 $ 40,000 6 years $ 0 6 years The working capital needed for project B will be released at the end of six years for investment elsewhere. Perit Industries' discount rate is 14%. Click here to view Exhibit 12B-1 and Exhibit 12B-2. to determine the appropriate discount factor(s) using tables. Required: 1. Compute the net present value of Project A. (Enter negative values with a minus sign. Round your final answer to the nearest whole dollar amount.) 2 Compute the net present value of Project B. (Enter negative values with a minus sign. Round your final answer to the nearest whole dollar amount.) 3. Which investment alternative (if either) would you…
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Iron Company is considering a new equipment which will cost $75,000 today. The equipment would be depreciated on a straight-line basis over the project's 3-year life, would have a zero-salvage value, and would require additional net operating working capital of $18,000. The annual sales revenues of the project are $100,000, and annual operating cost except depreciation is $45,000. Revenues and other operating costs are expected to be constant over the project's life. Iron Company tax rate is 35.0% and its cost of capital is 13.35 percent. What is the project's NPV, what the project's MIRR? (MUST show and explain all steps)- Please and thank you!
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…
A tunnel to transport water initially cost $1,000,000 and has expected maintenance costs that will occur in a 6-year cycle as shown below, assume MARR is 5% per year. End of Year: 2 4 6. Maintenance: $35,000 $35,000 $35,000 $45,000 $45,000 $60,000 Compute the Equivalent Annual Cost of the maintenance. Hint: Don't insert the negative sign Compute the Capitalized Cost? Hint: Don't insert the negative sign
Consider the following project for Hand Clapper, Inc. The company is considering a 4-year project to manufacture clap-command garage door openers. This project requires aninitial investment of $16.7 million that will be depreciated straight-line to zero over theproject’s life. An initial investment in net working capital of $1,070,000 is required tosupport spare parts inventory; this cost is fully recoverable whenever the project ends.The company believes it can generate $14.3 million in revenues with $5.8 million inoperating costs. The tax rate is 22 percent and the discount rate is 14 percent. Themarket value of the equipment over the life of the project is as follows: Year Market Value ($ millions)1 $ 14.702 11.703 9.204 1.95a. Assuming Hand Clapper operates this project for four years, what is the NPV?b. Compute the project NPV assuming the project is abandoned after only one year.c. Compute the project NPV assuming the project is abandoned after only two years.d. Compute the…
Ursus, Inc., is considering a project that would have a eight-year life and would require a $2,200,000 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.): Sales $ 2,200,000 Variable expenses 1,450,000 Contribution margin 750,000 Fixed expenses: Fixed out-of-pocket cash expenses $ 250,000 Depreciation 275,000 525,000 Net operating income $ 225,000 Click here to view Exhibit 13B-1 and Exhibit 13B-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 11%. Required: a. Compute the project's net present value. (Round your intermediate calculations and final answer to the nearest whole…
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Iggy Company is considering three capital expenditure projects. Relevant data for the projects are as follows. Project Investment AnnualIncome Life ofProject 22A $243,600 $17,130 6 years 23A 271,500 20,700 9 years 24A 280,600 15,700 7 years Annual income is constant over the life of the project. Each project is expected to have zero salvage value at the end of the project. Iggy Company uses the straight-line method of depreciation.(a) Determine the internal rate of return for each project. (Round answers 0 decimal places, e.g. 13%. For calculation purposes, use 5 decimal places as displayed in the factor table provided.) Project Internal Rate ofReturn 22A % 23A % 24A % If Iggy Company’s required rate of return is 11%, which projects are acceptable?
Caradoc Machine Shop is considering a four-year project to improve itsproduction efficiency. Buying a new machine press for $410,000 isestimated to result in $150,000 in annual pre-tax cost savings. The pressfalls into Class 8 for CCA purposes (CCA rate of 20% per year), and it willhave a salvage value at the end of the project of $55,000. The press alsorequires an initial investment in spare parts inventory of $20,000, alongwith an additional $3,100 in inventory for each succeeding year of theproject. If the shop’s tax rate is 35% and its discount rate is 9%.Calculate the NPV of this project. (Do not round your intermediatecalculations. Round the final answer to 2 decimal places. Omit $ sign inyour response.)NPV $ Should the company buy and install the machine press?
ang Enabled Ex Jessica's at Boulder jewelry store is considering expanding its operations. The expansion will require new equipment costing $651,000 that would be depreciated on a straight-line basis to zero over the 5-year life of the project. The equipment will have a market value of $169,000 at the end of the project. The project requires $39,000 initially for net working capital, which will be recovered at the end of the project. The operating cash flow (pre-tax) will be $165,300 a year. What is the net present value of this project if the relevant discount rate is 13 percent and the tax rate is 35 percent? -$29.866 -$25,031 -$27812 -$32.962 -$35,498

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