Elmdale Enterprises is deciding whether to expand its production facilities. Although long-term cash flows are difficult to estimate, management has projected the following cash flows for the first two years (in millions of dollars): (Click o the following icon in order to copy its contents into a spreadsheet.) Revenues COGS and Operating expenses other than depreciation Depreciation Increase in net working capital Capital expenditures Marginal corporate tax rate Year 1 115.5 42.3 28.2 3.4 29.2 a. What are the incremental earnings for this project for years 1 and 2? b. What are the free cash flows for this project for the first two years? 28% Year 2 155.7 63.7 35.7 8.5 42.5 28%

Elmdale Enterprises is deciding whether to expand its production facilities. Although long-term cash flows are difficult to estimate, management has projected the following cash flows for the first two years (in millions of dollars): (Click o the following icon in order to copy its contents into a spreadsheet.) Revenues COGS and Operating expenses other than depreciation Depreciation Increase in net working capital Capital expenditures Marginal corporate tax rate Year 1 115.5 42.3 28.2 3.4 29.2 a. What are the incremental earnings for this project for years 1 and 2? b. What are the free cash flows for this project for the first two years? 28% Year 2 155.7 63.7 35.7 8.5 42.5 28%

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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7. A company that makes clutch disks had the cash flows shown below for one department with a MARR of 25%. Calculate the rate of return by using return on invested capital approach with a reinvestment rate of 15% per year. Should the company continue to make clutch disks? Year Cash Flow, $ Ft 1500 1 -1800 2 600 -570 3.
roject Cash Flow The financial staff of Cairn Communications has identified the following information for the first year of the roll-out of its new proposed service: Projected sales $24 million Operating costs (not including depreciation) $13 million Depreciation $5 million Interest expense $4 million The company faces a 25% tax rate. What is the project's operating cash flow for the first year (t = 1)? Enter your answer in dollars. For example, an answer of $1.2 million should be entered as $1,200,000. Round your answer to the nearest dollar. $
Nugent Communication Corp. is investing $8,501,547 in new technologies. The company expects significant benefits in the first three years after installation (as can be seen by the following cash flows), and smaller constant benefits in each of the next four years. Year 1 2 3 4-7 Cash Flows $1,736,907 $4,841,362 $2,794,697 $1,009,125 What is the discounted payback period for the project assuming a discount rate of 10 percent?
Etobicoke Enterprises is deciding whether to expand its production facilities. Although long-term cash flows are difficult to estimate, management has projected the following cash flows for the first two years (in millions of dollars): Revenues Operating Expenses (other than depreciation) CCA Increase in Net Working Capital Capital Expenditures Marginal Corporate Tax Rate Year 1 128.5 47.2 29.9 3.1 28.7 35% Year 2 155.5 63.7 34.1 8.9 41.6 35% a. What are the incremental earnings for this project for years 1 and 2? (Note: Assume any incremental cost of goods sold is included as part of operating expenses.) b. What are the free cash flows for this project for the first two years?
Required: The MoMi Corporation's cash flow from operations before interest and taxes was $2.3 million in the year just ended, and it expects that this will grow by 5% per year forever. To make this happen, the firm will have to invest an amount equal to 17% of pretax cash flow each year. The tax rate is 21%. Depreciation was $290,000 in the year just ended and is expected to grow at the same rate as the operating cash flow. The appropriate market capitalization rate for the unleveraged cash flow is 12% per year, and the firm currently has debt of $5 million outstanding. Use the free cash flow approach to calculate the value of the firm and the firm's equity. (Enter your answer in dollars not in millions.) Value of the firm Value of the firm's equity
What is the net effect on a firm's cash flow from changes in net working capital if a new project requires: $ 30,000 increase in inventory, $ 10,000 increase in accounts receivable, $35,000 increase in machinery, and a $20,000 increase in accounts payable?
company that makes clutch disks had the cash flows shown below for one department with a MARR of 25%. Calculate the rate of return by using return on invested capital approach with a reinvestment rate of 15% per year. Should the company continue to make clutch disks? Year 0 1 2 3 Cash Flow, $ Ft 500 -600 200 -190
C) a decrease of $12 D) an increase of $60,000 20. In a particular year a certain investment project generated revenue of $200,000. Other expenses (excluding depreciation and interest expense) totaled $100,000. Depreciation expense was $50,000 and interest expense was $10,000. The firm faces a tax rate of 21%. What is the project's after-tax operating cash flow in this year? A) $89,500 B) $81,600 C) $129,000 D) $79,000 ting decision and must
NPV and IRR The first two scenarios are independent. All cash flows are after-tax cash flows. The present value tables provided in Exhibit 19B.1 and Exhibit 19B.2 must be used to solve the following problems. Required: 1. Patz Corporation is considering the purchase of a computer-aided manufacturing system. The cash benefits will be $800,000 per year. The system costs $4,000,000 and will last eight years. Compute the NPV assuming a discount rate of 10 percent. Should the company buy the new system? Yes 2. Amy Wetzel has just invested $270,000 in a restaurant specializing in German food. She expects to receive $43,470 per year for the next eight years. Her cost of capital is 5.5 percent. Compute the internal rate of return. Enter your answer as a whole percentage value (for example, 16% should be entered as "16" in the answer box). X % Did Amy make a good decision? Yes 3. For each of the previous two requirements, choose the data analytic type that applies and explain why (descriptive,…

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