Garden-Grow Products is considering a new investment whose data are shown below. 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 some additional working capital that would be recovered at the end of the project's life. Revenues and other operating costs are expected to be constant over the project's life. What is the project's NPV? (Hint: Cash flows are constant in Years 1 to 3.) Project cost of capital (r) 10.0% Net investment in fixed assets (basis)$75,000 Required new working capital $15,000 Straight-line deprec. rate 33.333% Sales revenues, each year $75,000 Operating costs (excl. deprec.), each year $25,000 Tax rate 35.0%

Garden-Grow Products is considering a new investment whose data are shown below. 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 some additional working capital that would be recovered at the end of the project's life. Revenues and other operating costs are expected to be constant over the project's life. What is the project's NPV? (Hint: Cash flows are constant in Years 1 to 3.) Project cost of capital (r) 10.0% Net investment in fixed assets (basis)$75,000 Required new working capital $15,000 Straight-line deprec. rate 33.333% Sales revenues, each year $75,000 Operating costs (excl. deprec.), each year $25,000 Tax rate 35.0%

Cornerstones of Cost Management (Cornerstones Series)

4th Edition

ISBN:9781305970663

Author:Don R. Hansen, Maryanne M. Mowen

Publisher:Don R. Hansen, Maryanne M. Mowen

Chapter19: Capital Investment

Section: Chapter Questions

Problem 10E: Roberts Company is considering an investment in equipment that is capable of producing more...

See similar textbooks

Similar questions

A company is considering a new investment whose data are shown below. 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 some additional working capital that would be recovered at the end of the project's life. Revenues and other operating costs are expected to be constant mer the project's life. What is the project's NPV? Project cost of capital (r) 10% Net investment in fixed assets (basis) $65,000 Required new working capital $15,000 Straight-line deprec. rate 33.333% Sales revenues, each year $75,000 Operating costs (excl. deprec.), each year $25,000 Tax rate 35.0% a. $26,297 b. $30,950 c. $23,852 d. $23,045 e. $33,993
Foley Systems is considering a new investment whose data are shown below. 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 that would be recovered at the end of the project's life. Revenues and other operating costs are expected to be constant over the project's life. What is the project's NPV? (Hint: Cash flows from operations are constant in Years 1 to 3.) WACC Net investment in fixed assets (basis) Required net operating working capital Straight-line depreciation rate Annual sales revenues Annual operating costs (excl. depr.) Tax rate A. $23,852 B. $25,045 C. $26,297 10.0% $75,000 $15,000 33.333% $75,000 $25,000 35.0% D. $27,612 E. $28,993 Can this be found using the financial calculator?
(#11) Genoa Company is considering a new investment whose data are shown below. 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 that would be recovered at the end of the project's life. Revenues and other operating costs are expected to be constant over the project's life. What is the project's NPV? WACC 12% Net investment in fixed assets (basis) $75,000 Required net operating working capital $15,000 Straight-line depreciation rate 33.333% Annual sales revenues $79,000 Annual operating costs (excl. depr.) $25,000 Tax rate 35.0%
Hearne Company has a number of potential capital investments. Because these projects vary in nature, initial investment, and time horizon, management is finding it difficult to compare them. Assume straight line depreciation method is used. (Future Value of $1, Present Value of $1, Future Value Annuity of $1, Present Value Annuity of $1.) (Use appropriate factor(s) from the tables provided.) Project 1: Retooling Manufacturing Facility This project would require an initial investment of $4,930,000. It would generate $937,000 in additional net cash flow each year. The new machinery has a useful life of eight years and a salvage value of $1,880,000. Project 2: Purchase Patent for New Product The patent would cost $3,680,000, which would be fully amortized over five years. Production of this product would generate $607,200 additional annual net income for Hearne. Project 3: Purchase a New Fleet of Delivery Trucks Hearne could purchase 25 new delivery trucks at a cost of $145,400 each. The…
Hearne Company has a number of potential capital investments. Because these projects vary in nature, initial investment, and time horizon, management is finding it difficult to compare them. Assume straight line depreciation method is used. (Future Value of $1, Present Value of $1, Future Value Annuity of $1, Present Value Annuity of $1.) Note: Use appropriate factor(s) from the tables provided. Project 1: Retooling Manufacturing Facility This project would require an initial investment of $4,960,000. It would generate $964,000 in additional net cash flow each year. The new machinery has a useful life of eight years and a salvage value of $1,910,000. Project 2: Purchase Patent for New Product The patent would cost $3,785,000, which would be fully amortized over five years. Production of this product would generate $681,300 additional annual net income for Hearne. Project 3: Purchase a New Fleet of Delivery Trucks Hearne could purchase 25 new delivery trucks at a cost of $156,800 each.…
Hearne Company has a number of potential capital investments. Because these projects vary in nature, initial investment, and time horizon, management is finding it difficult to compare them. Assume straight line depreciation method is used. (Future Value of $1, Present Value of $1, Future Value Annuity of $1, Present Value Annuity of $1.) Note: Use appropriate factor(s) from the tables provided. Project 1: Retooling Manufacturing Facility This project would require an initial investment of $5,050,000. It would generate $1,045,000 in additional net cash flow each year. The new machinery has a useful life of eight years and a salvage value of $2,000,000. Project 2: Purchase Patent for New Product The patent would cost $4,100,000, which would be fully amortized over five years. Production of this product would generate $922,500 additional annual net income for Hearne. Project 3: Purchase a New Fleet of Delivery Trucks Hearne could purchase 25 new delivery trucks at a cost of $191,000…
ABC company is considering a new investment whose data are shown below for which you need to estimate the cash flows. The equipment asset would be depreciated on a straight-line basis over the project's 3-year life, would have a salvage value 1000 at the end of the 3 yrs project. ABC company would require some additional working capital that would be recovered at the end of the project's life. Revenues and other operating costs are expected to be constant over the project's life. a) Estimate the Cash Flows and find the NPV and IRR of the project b) Find the sensitivity of NPV with respect to the WACC for +30% and -30% devaition from the base value of 10%
How would I solve this?
Roberts Company is considering an investment in equipment that is capable of producing more efficiently than the current technology. The outlay required is 2,293,200. The equipment is expected to last five years and will have no salvage value. The expected cash flows associated with the project are as follows: Required: 1. Compute the projects payback period. 2. Compute the projects accounting rate of return. 3. Compute the projects net present value, assuming a required rate of return of 10 percent. 4. Compute the projects internal rate of return.
Friedman Company is considering installing a new IT system. The cost of the new system is estimated to be 2,250,000, but it would produce after-tax savings of 450,000 per year in labor costs. The estimated life of the new system is 10 years, with no salvage value expected. Intrigued by the possibility of saving 450,000 per year and having a more reliable information system, the president of Friedman has asked for an analysis of the projects economic viability. All capital projects are required to earn at least the firms cost of capital, which is 12 percent. Required: 1. Calculate the projects internal rate of return. Should the company acquire the new IT system? 2. Suppose that savings are less than claimed. Calculate the minimum annual cash savings that must be realized for the project to earn a rate equal to the firms cost of capital. Comment on the safety margin that exists, if any. 3. Suppose that the life of the IT system is overestimated by two years. Repeat Requirements 1 and 2 under this assumption. Comment on the usefulness of this information.
Calculate the Net present value of the replacement decision? At times firms will need to decide if they want to continue to use their current equipment or replace the equipment with newer equipment. The company will need to do replacement analysis to determine which option is the best financial decision for the company. Price Co. is considering replacing an existing piece of equipment. The project involves the following: The new equipment will have a cost of $1,800,000, and it will be depreciated on a straight-line basis over a period of six years (years1-6). The old machine is also being depreciated on a straight-line basis. It has a book value of $200,000 (at year O) and four more years of depreciation left ($50,000 per year). . The new equipment will have a salvage value of $0 at the end of the project's life (year 6). The old machine has a current salvage value (at year 0) of $300,000. Replacing the old machine will require an investment in net working capital (NWC) of $20,000…
We are analyzing a project and have gathered the following data. Based on this data, what is the average accounting rate of return? The project's assets will be depreciated using straight-line depreciation to a zero book value over the life of the project. Year Cash Flow Net Income 0 $285,000 n/a 1 $83,650 $12,400 2 $92,850 $21,600 3 $94,350 $23,100 4 $93,250 $22,000