Hassle-Free Web is bidding to provide web hosting services for Hotel Lisbon. Hotel Lisbon pays its current provider $10,300 per year for hosting its web page, handling transactions, etc. Hassle-Free figures that it will need to purchase equipment worth $15,100 up front and then spend $2,100 per year on monitoring, updates, and bandwidth to provide the service for 3 years. If Hassle-Free's cost of capital is 9.5%, can it bid less than $10,300 per year to provide the service and still increase its value by doing so?

Hassle-Free Web is bidding to provide web hosting services for Hotel Lisbon. Hotel Lisbon pays its current provider $10,300 per year for hosting its web page, handling transactions, etc. Hassle-Free figures that it will need to purchase equipment worth $15,100 up front and then spend $2,100 per year on monitoring, updates, and bandwidth to provide the service for 3 years. If Hassle-Free's cost of capital is 9.5%, can it bid less than $10,300 per year to provide the service and still increase its value by doing so?

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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I need help solving this problem below on excel. Suppose you purchased equipment and agreed to pay the manufacturer $100,000 in 4 years for the equipment. What should you record the cost of the equipment today if your cost of capital is 5%?
Thunder Corporation, an amusement park, is considering a capital investment in a new exhibit. The exhibit would cost $204,969 and have an estimated useful life of 12 years. It can be sold for $69,200 at the end of that time. (Amusement parks need to rotate exhibits to keep people interested.) It is expected to increase net annual cash flows by $26,300. The company's borrowing rate is 8%. Its cost of capital is 10%. Click here to view the factor table. Calculate the net present value of this project to the company and determine whether the project is acceptable. (If the net present value is negative, use either a negative sign preceding the number eg-45 or parentheses eg (45). For calculation purposes, use 5 decimal places as displayed in the factor table provided. Round present value answer to O decimal places, eg. 125) Net present value $ The project SUPPO
Sports EX Inc. is a Sports Shoes Company which is considering investingin a new equipment for the production of a new line of Tennis andFootball Shoes for its elite customers. The new equipment will cost$250,000, and an additional $80,000 is needed for installation. Theequipment which falls into the MACRS 3-yr class, would be sold afterthree years for $35,000.The equipment will generate additional annual revenues of $210,000,and will have annual operating expenses of $60,000. An inventoryinvestment of $60,000 is required during the life of the project.Sports EX is in the 30 percent tax bracket, and has the same risk asthe firm’s existing assets.The capital required for the project has been arranged as follows:Debt: 1,000 8%, 10-year, semi-annual coupon bonds with a par value of$100, each selling for 90% of its face valueCommon stock: 2,500 shares selling for $96 each with a beta of 1.05.The market’s rate of return is 11% and risk-free investments offer a4% return.You are required to:1.…
Sports EX Inc. is a Sports Shoes Company which is considering investingin a new equipment for the production of a new line of Tennis andFootball Shoes for its elite customers. The new equipment will cost$250,000, and an additional $80,000 is needed for installation. Theequipment which falls into the MACRS 3-yr class, would be sold afterthree years for $35,000.The equipment will generate additional annual revenues of $210,000,and will have annual operating expenses of $60,000. An inventoryinvestment of $60,000 is required during the life of the project.Sports EX is in the 30 percent tax bracket, and has the same risk asthe firm’s existing assets.The capital required for the project has been arranged as follows:Debt: 1,000 8%, 10-year, semi-annual coupon bonds with a par value of$100, each selling for 90% of its face valueCommon stock: 2,500 shares selling for $96 each with a beta of 1.05.The market’s rate of return is 11% and risk-free investments offer a4% return.You are required…
Munch N' Crunch Snack Company is considering two possible investments: a delivery truck or a bagging machine. The delivery truck would cost $43,056 and could be used to deliver an additional 95,000 bags of pretzels per year. Each bag of pretzels can be sold for a contribution margin of $0.45. The delivery truck operating expenses, excluding depreciation, are $1.35 per mile for 24,000 miles per year. The bagging machine would replace an old bagging machine, and its net investment cost would be $61,614. The new machine would require three fewer hours of direct labor per day. Direct labor is $18 per hour. There are 250 operating days in the year. Both the truck and the bagging machine are estimated to have 7-year lives. The minimum rate of return is 13%. However, Munch N' Crunch has funds to invest in only one of the projects. Present Value of an Annuity of $1 at Compound Interest Year 6% 10% 12% 15% 20% 1 2 3 4 5 6 7 8 9 10 0.943 1.833 2.673 3.465 4.212 4.917 5.582 6.210 6.802 7.360…
A firm that purchases electricity from the local utility for $300,000 per year is considering installing a steam generator at a cost of $340,000. The cost of operating this generator would be $160,000 per year, and the generator will last for five years. If the firm buys the generator, it does not need to purchase any electricity from the local utility. The cost of capital is 11%. For the local utility option, consider five years of electricity purchases. For the generator option, assume immediate installation, with purchase and operating costs in the current year and operating costs continuing for the next four years. Assume payments under both options at the start of each year (i.e., immediate, one year from now,..., four years from now). What is the net present value of the more attractive choice?
Abbondante Multinational Inc. has to decide between a gas powered and an electric - powered forklift. The company will buy only one forklift. The gas - powered forklift costs $17,600 and has cash flows of $5,700 per year for 8 years. The electric - powered forklift will cost $ 22,100 and has cash flows of $5,900 per year for 6 years. The cost of capital is 9.57%. Calculate the NPV and the IRR for each forklift. Which one should the company select? Why? Calculate the profitability index for both. Which one should the company select? Why?
Haresh
The FernRod Motorcycle Company invested $150,000 at 4.5% compounded monthly to be used for the expansion of their manufacturing facilities. How much money will be available for the project in 5 1/2 years? (Round your answer to the nearest dolla
Moxabl Inc. plans to buy land and build an assembly line for its expansion. The anticipated total cost of the land and structures is $0.65 million. The founder-owners of the company are reluctant to borrow money and prefer to set aside savings from profits to cover the cost. Management believes that the firm can set aside $650,000 a month to accumulate the capital necessary for this investment. The firm can earn 8 percent compounded monthly on the funds it saves. How long will it take for the firm to have sufficient capital to invest in this expansion? Assume that the cost of expansion remains constant over time.
Foster Incorporated is trying to decide whether to lease or purchase a piece of equipment needed for the next 10 years. The equipment would cost $53,000 to purchase, and maintenance costs would be $5,200 per year. After 10 years, Foster estimates it could sell the equipment for $25,000. If Foster leases the equipment, it would pay $15,000 each year, which would include all maintenance costs. If Foster's cost of capital is 12%, Foster should: (Future Value of $1, Present Value of $1, Future Value Annuity of $1, Present Value Annuity of $1) Note: Use the appropriate factors from the PV tables. Multiple Choice buy the equipment, as the net present value of the cost is about $53,000 less. lease the equipment, as the net present value of the cost is about $10,400 less. buy the equipment, as the net present value of the cost is about $10,400 less. О lease the equipment, as the net present value of the cost is about $6,700 less.
A newly established limited liability company, Joyful Way Limited, is constructing factory for the manufacturing of a new liquid soap. When completed, Joyful Way would be able to sell one million bottles of the soap in year 1, two million bottles in year 2, and three million bottles in each of years 3, 4 and 5. Price per bottle is estimated at GHC10 in year 1, and goes up by 5% a year. The factory building and equipment will cost GHC250,000 and GHC350,000. This cost must be borne immediately. The Company would require GHC50,000 to maintain equipment in year 1, and GHC50,000 in working capital. These two will go up 20% a year. Joyful Way intends to be conservative and so uses five years for its projections. At the end of year 5, equipment plus building can be sold for GHC30,000. Cost of capital is 30%. Required: Using NPV as a basis of appraisal, advise management of Joyful Way Limited.

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