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 atthe 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 35percent of sales. The project would require an investment of $51,000 in NWC that would be returned at the end of the project. The taxrate 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.NPV348437.32

Net Present Value or NPV is a financial metric used by investors to determine the viability of…

Answered: Eggz, Incorporated, is considering the…

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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Motion Metrics is considering a four-year project to improve its production efficiency. Buying a new production equipment for $414,000 is estimated to result in $154,000 in annual pre-tax cost savings. The equipment falls into Class 8 for CCA purposes (CCA rate of 20% per year), and it will have a salvage value at the end of the project of $55,400. The project also requires an initial investment in spare parts inventory of $24,000, along with an additional $3,500 in inventory for each succeeding year of the project. If the firm's tax rate is 35% and its discount rate is 9%. Calculate the NPV of this project. (Do not round your intermediate calculations. Round the final answer to 2 decimal places. Omit $ sign in your response.) O NPV
A proposed cost-saving device has an installed cost of $905,000. The device will be used in a five-year project but is classified as three-year MACRS property for tax purposes. The required initial net working capital investment is $65,000, the tax rate is 22 percent, and the project discount rate is 9 percent. The device has an estimated Year 5 salvage value of $125,000. What level of pretax cost savings do we require for this project to be profitable? (MACRS schedule) Note: Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16. Required cost savings
Your company is considering a project which will require the purchase of $715,000 in new equipment. The company expects to sell the equipment at the end of the project for 25% of its original cost, but some assets will remain in the CCA class. Annual sales from this project are estimated at $256,000. Initial net working capital equal to 32.00% of sales will be required. All of the net working capital will be recovered at the end of the project. The firm requires a 10.00% return on similar investments. The tax rate is 35%, and the project life is 5 years. There are no other operating expenses. If the equipment is in a 33.00% CCA class, what is the present value of the CCA tax shield? Options $153,510 $157,348 $161,186 $165,024 $168,861
Cori's Meats is looking at a new sausage system with an installed cost of $435,000. This cost will be depreciated straight-line to zero over the project's five-year life, at the end of which the sausage system can be scrapped for $61,000. The sausage system will save the firm $255,000 per year in pretax operating costs, and the system requires an initial investment in net working capital of $20,000. If the tax rate is 24 percent and the discount rate is 9 percent, what is the NPV of this project? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.) NPV
Bourque Enterprises is considering a new project. The project will generate sales of $1.6 million, $2.3 million, $2.2 million, and $1.7 million over the next four years, respectively. The fixed assets required for the project will cost $2.1 million and will be eligible for 100 percent bonus depreciation. At the end of the project, the fixed assets can be sold for $165,000. Variable costs will be 25 percent of sales and fixed costs will be $540,000 per year. The project will require NWC equal to 20 percent of sales that must be accumulated in the year prior to sales. The required return on the project is 13 and the tax rate is 24 percent. What is the NPV of the project?
The Bruin's Den Outdoor Gear is considering a new 7-year project to produce a new tent line. The equipment necessary would cost $1.83 million and be depreciated using straight-line depreciation to a book value of zero. At the end of the project, the equipment can be sold for 10 percent of its initial cost. The company believes that it can sell 29,000 tents per year at a price of $75 and variable costs of $34 per tent. The fixed costs will be $505,000 per year. The project will require an initial investment in net working capital of $237,000 that will be recovered at the end of the project. The required rate of return is 11.8 percent and the tax rate is 21 percent. What is the NPV?
ACE Ltd is evaluating whether it should invest in a machine that costs $100,000. The machine would be fully depreciated over ten years to zero value using the straight-line depreciation method. With the new machine, the firm projects that it will be able to generate an additional $20,000 annually in sales revenue and additional $10,000 cost annually. The firm would also need an additional net working capital of $40,000. Given the firm’s cost of capital is 10% and tax rate of 20%, calculate annual operating cash flow (OCF) of the investment.
Geary Machine Shop is considering a 4-year project to improve its production efficiency. Buying a new machine press for $576,036 is estimated to result in $255,756 in annual pretax cost savings. The press falls in the MACRS five-year class (Refer to the MACRS table on page 277), and it will have a salvage value at the end of the project of $106,549. The press also requires an initial investment in spare parts inventory of $73,540, along with an additional $7,848 in inventory for each succeeding year of the project. If the shop's tax rate is 0.26 and its discount rate is 0.09, what is the total cash flow in year 4? (Do not round your intermediate calculations.) (Make sure you enter the number with the appropriate +/- sign)
Gateway Communications is considering a project with an initial fixed asset cost of $2 million which will be depreciated straight-line to a zero over the 10-year life of the project. At the end of the project the equipment will be sold for an estimated $400,000. The project will not directly produce any sales but will reduce operating costs by $820,000 a year. The tax rate is 21 percent. The project will require $50,000 of inventory which will be recouped when the project ends. Should this project be implemented if the firm requires a 12 percent rate of return? Why or why not? Please show fomulas
Caradoc Machine Shop is considering a four-year project to improve its production efficiency. Buying a new machine press for $410,000 is estimated to result in $150,000 in annual pre-tax cost savings. The press falls into Class 8 for CCA purposes (CCA rate of 20% per year), and it will have a salvage value at the end of the project of $55,000. The press also requires an initial investment in spare parts inventory of $20,000, along with an additional $3,100 in inventory for each succeeding year of the project. If the shop’s tax rate is 35% and its discount rate is 9%. Calculate the NPV of this project.
Bruin Building Supply is considering expansion. Operating cash flow will be $710,000 a year. The project will require new equipment costing $1,850,000 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 $370,000 at the end of the project. The project requires an initial investment of $525,000 in net working capital, which will be recovered at the end of the project. The tax rate is 28.00 percent. What is the project's IRR? Answer in whole numbers, rounded to three decimal places.

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