Fool Proof Software is considering a new project whose data are shown below. The equipment that would be used has a 3-year tax life, and the allowed depreciation rates for suchproperty are 33%, 45%, 15%, and 7% for Years 1 through 4. Revenues and other operating costs are expected to be constant over the project's 10-year expected life. What is the Year 1 cashflow?Equipment cost (depreciable basis)$42,000$60,000$25,00035.0%Sales revenues, each yearOperating costs (excl. depr.)Tax ratea. $33,121Ob. $29,533Oc. $22,909Od. $33,397Oe. $27,601beA-

To calculate the Year 1 cash flow for Fool Proof Software's new project, follow these…

Answered: Fool Proof Software is considering a…

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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Fitzgerald Computers is considering a new project whose data are shown below. The required equipment has a 3-year tax life, after which it will have zero book value, and it will be depreciated by the straight-line method over 3 years. Revenues and other operating costs are expected to be constant over the project's 4-year life. What is the project's Year 4 cash flow? $65,000 Equipment cost (depreciable basis) Straight-line depreciation rate Sales revenues, each year Operating costs (excl. deprec.) Tax rate a. $27,500 b. $28,438 c. $22,750 d. $21,000 e. $30,333 33.33% $60,000 $25,000 35.0%
A new project has an initial cost of $250,000. The equipment will be depreciated on a straight-line basis to a zero book value over the five-year life of the project. The projected net income each year is $13,250, $18,000, $20,240, $15,150, and $11,900, respectively. What is the average accounting return? Multiple Choice 11.52% 8.95% 13.46% 12.57% 5.33%
A 7-year project is expected to provide annual sales of $221,000 with costs of $97,500. The equipment necessary for the project will cost $360,000 and will be depreciated on a straight-line method over the life of the project. You feel that both sales and costs are accurate to +/-15 percent. The tax rate is 21 percent. What is the annual operating cash flow for the worst-case scenario? es Multiple Choice $77,946 $44,504 0 $70,623 $129,329 $49.221
What is the ERR for this project? Assume that = 12% and MARR = 20% per year. Is this project considered to be profitable? What is the simple payback period?
3. Consider a project with an initial investment of $60,000, a 8 year useful life (and study period), and a $9,000 salvage value. You expect an annual net revenue of $14,000 (before tax), a MARR before tax of 15%, and an effective tax rate of 35%. The capital equipment is to be depreciated using MACRS ADS and a 7 year class life, Using after-tax cash flow analysis, determine if this is a good investment.
A project requires an initial investment in equipment and machinery of $10 million. The equipment is expected to have a 5-year lifetime with no salvage value and will be depreciated on a straight-line basis. The project is expected to generate revenues of $5.1 million each year for the 5 years and have operating expenses (not including depreciation) amounting to 1/3 of revenues. The tax rate is 40%. What is the net cash flow in year 1? Group of answer choices 3.40M 2.84M 0.84M 2.04M
A project requires initial asset investment of $1 million. The asset will last for 8 years, and will be depreciated for tax purposes at the CCA rate of 30%. The required return on this project is 16%, and the marginal corporate tax rate is 36%. Assuming that the asset will have a salvage value of $50,000 at the end of Year 8. what is the present value of the CCA tax shields from this project? Multiple Choice 204111.57 $215.009.97 $218.59071 $234.782.61
National Integrated Systems (NIS), a global provider of heating and air conditioning is planning a project whose data is provided below. The project’s equipment has a 3 year tax life after which its salvage value will be zero. The machinery will be depreciated on a straight line basis over three years. Revenues and other operating costs are expected to be constant over the project’s life. What is the project’s cash flow in Year 1? Equipment Cost = $130,000Depreciation rate = 33.33%Annual Sales Revenue= $120,000Operating Costs (ex Depreciation) = $50,000 Tax Rate = 35%
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Macrohard Software is considering a new project whose data are shown below. The equipment that would be used has a 3-year tax life, and the allowed depreciation rates for such property are 35 %, 43%, 17%, and 5% for Years 1 through 4. Revenues and other operating costs are expected to be constant over the project's 10-year expected life. Equipment cost (depreciable basis) P78,000 Sales revenues, each year 50,000 Operating costs (excl. depreciation) 25,000 Tax rate 25.0% The following are the questions/requirements for this data set. Fill-up the answers in the next 3 questions: (Round final answers to nearest peso) Year 1 Operating Cash Flow • Year 3 Operating Cash Flow Year 5 Operating Cash Flow
Giant Machinery Ltd is considering to invest in one of the two following Projects to buy a new equipment. Each project will last 5 years and have no salvage value at the end. The company’s required rate of return for all investment projects is 9%. The cash flows of the projects are provided below. Project 1Cost $175,000 Project 2 Cost $185,000 Future Cash Flows For Project 1 Year 1 Year 2 Year 3 Year 4 Year 5 is 76,000 83,000 67,000 65,000 55,000 respectively. For Project 2 it is 87,000 78,000 69,000 65,000 57,000 for Year 1 Year 2 Year 3 Year 4 Year 5 resp. Required: a) Identify which project should the company accept based on NPV method. (Note: Please round up the result of each calculation of PV to 2 decimal places only for simplification) b) Identify which project should the company accept based on simple pay back method if the payback criteria is maximum 2 years. c) Which project Giant Machinery should choose if two methods are in conflict
You are considering the following project. What is the NPV of the project? WACC of the project: 0.10 Revenue growth rate: 0.05 Tax rate: 0.40 Revenue for year 1: 13,000 Fixed costs for year 1: 3,000 variable costs (% of revenue): 0.30 project life: 3 years Economic life of equipment: 3 years Cost of equipment: 20,000 Salvage value of equipment: 4,000 Initial investment in net working capital: 2,000

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