costing $150,000. Grover intends to keep the truck for five years beforeGrover Contracting, Inc., is considering the purchase of a new cement trucktrading it in on a new one. The truck's estimated salvage value at the end ofhe five-year period is approximately $25,000. The truck is expected toincrease annual income and cash flows by the following amounts:YearIncrease in NetCash Flows2$Increase inIncome2$37,50037,50037,50037,500110,00012,00014,0003416,000518,00037,500$70,000$187,500Required:a.Compute the payback period associated with this investment.b.Compute the return on average investment of this proposal.Compute the net present value of this investment if Grover requires a minimum return ofс.12%.d.Comment on your findings.

Given: Year Increase in income Increase in net cash flows 0 -$150,000 -$150,000 1 $10,000…

Answered: Grover Contracting, Inc., is…

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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(Part I) The Farmer Corporation is considering investing in a new manufacturing machine that has an estimated life of five years. The cost of the machine is $40,000 and the machine will be depreciated straight line over its five-year life to a residual value of $0. The manufacturing machine will result in sales of $50,000 in year 1. Sales are estimated to grow by 6% each year. It is estimated that the Farmer Corporation needs to hold 5% of its annual sales in cash, 10% of its annual sales in accounts receivable, 15% of its annual sales in inventory, and 20% of its annual sales in accounts payable. What is the required net working capital in the first year for this project? Multiple Choice $-1,500. $0. $2,500. $5,000. $10,000.
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Carson Trucking is considering whether to expand its regional service center in Moab, Utah. The expansion will require the expenditure of $10,000,000 on new service equipment and will generate annual net cash inflows by reducing operating costs by $2,500,000 per year for each of the next eight years. In year 8, the firm will also get back a cash flow equal to the salvage value of the equipment, which is valued at $1 million. Thus, in Year 8 the investment cash inflow will total $3,500,000. Calculate the project NPV using each of the following discount rates: A. 9 percent B. 11 percent C. 13 percent D. 15 percent in excel
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6
Grady Corporation is considering the purchase of a new piece of equipment. The equipment costs $51,100 and will have a salvage value of $5,120 after 9 years. Using the new piece of equipment will increase Grady's annual net cash flows by $6,090. Grady's cost of capital is 15%. (Future Value of $1, Present Value of $1, Future Value Annuity of $1, Present Value Annuity of $1) Note: Use appropriate factor from the PV tables. Required: a. What is the present value of the increase in annual cash flows? b. What is the present value of the salvage value? c. What is the net present value of the equipment purchase? d. Based on financial factors, should Grady purchase the equipment? Complete this question by entering your answers in the tabs below. Required A Required B Required C Required D What is the present value of the increase in annual cash flows? Note: Round your answer to the nearest whole dollar. Present Value Required B >

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