Fun Land is considering adding a miniature golfcourse to its facility. The course would cost$75000, would be depreciated on a straight linebasis over its 4-year life, and would have a zerosalvage value. The estimated income from thegolfing fees would be $40000 a year with $12000of that amount being variable cost. The fixed costwould be $6000. In addition, the firm anticipatesan additional $15000 in revenue from its existingfacilities if the course is added. The project willrequire $7000 of net working capital, which isrecoverable at the end of the project. What is thenet present value of this project at a discount rateof 12 percent and a tax rate of 35 percent?$19,812.09$20,360.22$15,429.48$13,199.40$24,738.41

Net present value(NPV) is the difference between present value of all cash inflows and initial…

Answered: Fun Land is considering adding 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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The Sumitomo Chemical Corporation is considering replacing a 5-year-old machine that originally cost $50,000 and can be sold for $60,000. This machine is totally depreciated. The replacement machine would cost $125,000 and have a 5-year expected life over which it would be depreciated down using the straight-line method and have no salvage value at the end of five years. The new machine would produce savings before depreciation and taxes of $45,000 per year. Assuming a 34 percent marginal tax rate and a required return of 10%, calculate The internal rate of return and the net present value. Please show work in Excel.
Suppose Hu's Software Design, Inc. from problem 6 has a choice between two computer systems. The first one will cost $80,000 and will have an economic life of 4 years. Annual maintenance costs would be $10,000. The other alternative would cost $135,000 and would have an economic life of 6 years. The annual maintenance would cost $13,000. Both alternatives would be fully depreciated using the straight-line method. Neither computer system will have a salvage value. The cost savings generated on an annual basis are assumed to be the same and the company expects to generate sufficient profits to realize the depreciation tax shield. The discount rate is 11% and the corporate tax rate is 35%. Which computer should be chosen?
Geary Machine Shop is considering a 4-year project to improve its production efficiency. Buying a new machine press for $551,998 is estimated to result in $166,942 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 $137,823. The press also requires an initial investment in spare parts inventory of $50,617, along with an additional $13,747 in inventory for each succeeding year of the project. If the shop's tax rate is 0.37 and its discount rate is 0.12, 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)
You must evaluate the purchase of a proposed spectrometer for the R&D department. The purchase price of the spectrometer including modifications is $300,000, and the equipment will be fully depreciated at the time of purchase. The equipment would be sold after 3 years for $90,000. The equipment would require an $8,000 increase in net operating working capital (spare parts inventory). The project would have no effect on revenues, but it should save the firm $71,000 per year in before-tax labor costs. The firm's marginal federal-plus-state tax rate is 25%. a. What is the initial investment outlay for the spectrometer after bonus depreciation is considered, that is, what is the Year 0 project cash flow? Enter your answer as a positive value. Round your answer to the nearest dollar. $ b. What are the project's annual cash flows in Years 1, 2, and 3? Do not round intermediate calculations. Round your answers to the nearest dollar. Year 1: $ Year 2: $ Year 3: $ 53,250 53,250 c. If the WACC…
Almendarez Corporation is considering the purchase of a machine that would cost $150,000 and would last for 5 years. At the end of 5 years, the machine would have a salvage value of $18,000. By reducing labor and other operating costs, the machine would provide annual cost savings of $39,000. The company requires a minimum pretax return of 13% on all investment projects. (Ignore income taxes.) Click here to view Exhibit 7B-1 and Exhibit 7B-2, to determine the appropriate discount factor(s) using the tables provided. The net present value of the proposed project is closest to: (Round your intermediate calculations and final answer to the nearest whole dollar amount.) Multiple Choice $(45,000) Q Search (((( |個個

You are the financial analyst for a tennis racket manufacturer. The company is considering using a graphitelike material in its tennis rackets. The company has estimated the information in the following table about the market for a racket with the new material. The company expects to sell the racket for 5 years. The equipment required for the project will be depreciated on a straight-line basis and has no salvage value. The required return for projects of this type is 14 percent and the company has a 25 percent tax rate. Market size Market share Pessimistic 115,000 Expected 125,000 Optimistic 137,000 18% 22% 24% Selling price $165 $ 170 $ 174 Variable costs per $ 108 $ 104 $ 101 unit Fixed costs per year Initial investment $980,000 $1,675,000 $925,000 $1,525,000 $895,000 $1,505,000 Calculate the NPV for each case for this project. Assume a negative taxable income generates a tax credit. (A negative amount should be indicated by a minus sign. Do not round intermediate calculations and…
Delia Landscaping is considering a new 4-year project. The necessary fixed assets will cost $193,000 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, and 7.41 percent, respectively. The project will have annual sales of $130,000, variable costs of $34,900, and fixed costs of $12,800. The project will also require net working capital of $3,400 that will be returned at the end of the project. The company has a tax rate of 24 percent and the project's required return is 14 percent. What is the net present value of this project? Multiple Choice О $22,754 $21,601 $23,908 $19,801 $25.295
Bangor Moving Company is thinking of opening a new warehouse, and the key data are shown below. The company owns the building that would be used, and it could sell it for $100,000 after taxes if it decides not to open the new warehouse. The equipment for the project would be depreciated by the straight-line method over the project's 3-year life, after which it would be worth nothing and thus it would have a zero salvage value. No new working capital would be required, and revenues and other operating costs would be constant over the project's 3-year life. What is the project's NPV? (Hint: Cash flows are constant in Years 1-3.) Project cost of capital (r)10.0%Opportunity cost$100,000Net equipment cost (depreciable basis)$65,000Straight-line deprec. rate for equipment33.333%Sales revenues, each year$123,000Operating costs (excl. deprec.), each year$25,000Tax rate25%
Wettway Sailboat Corporation is considering whether to launch its new Margo-class sailboat. The selling price will be $41,000 per boat. The variable costs will be about half that, or $20,000 per boat, and fixed costs will be $465,000 per year. The total investment needed to undertake the project is $3,100,000. This amount will be depreciated straight-line to zero over the 5-year life of the equipment. The salvage value is zero, and there are no working capital consequences. Wettway has a required return of 11 percent on new projects. FC + OCF-TCX D 1-TC P-v Use the above expression to find the cash, accounting, and financial break-even points for Wettway Sailboat. Assume a tax rate of 21 percent. (Do not round intermediate calculations and round your answers to 2 decimal places, e.g., 32.16.) Cash break-even Accounting break-even Financial break-even
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
Outdoor Sports is considering adding a putt-putt golf course to its facility. The course would cost $168,000, would be depreciated on a straight-line basis over its 4-year life, and would have a zero salvage value. The sales would be $90,300 a year, with variable costs of $27,450 and fixed costs of $12,050. In addition, the firm anticipates an additional $15,700 in revenue from its existing facilities if the putt putt course is added. The project will require $2,650 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 11 percent and a tax rate of 21 percent?
A private gym is looking at a new set of sports equipment with an installed cost of $465,000. This cost will be depreciated straight-line to zero over the project's five-year life, at the end of which the sports equipment can be scrapped for (TIP: "scrapped for" = sold for) $61,000. The sports equipment will save the gym $143,000 per year in pretax operating costs, and the equipment requires an initial investment in net working capital of $27,000. If the tax rate is 22 percent and the discount rate is 10 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

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