Het income of the investment for each year. b. Compute the incremental cash flows of the investment for each year. c. Suppose the appropriate discount rate is 12 percent. What is the NPV of the project? 3. Calculating Project NPV Down Under Boomerang, Inc., is considering a new three- year expansion project that requires an initial fixed asset investment of $1.65 million. The fixed asset will be depreciated straight-line to zero over its three-year tax life, after which it will be worthless. The project is estimated to generate $1.24 million in annual sales, with costs of $485,000. The tax rate is 35 percent and the required return is 12 percent. What is the project's NPV? Calculating Project Cash Flow from Assets In the previous problem, suppose the project requires an initial investment in net working capital of $285,000 and the fixed asset will have a market value of $225,000 at the end of the project. What is the project's 4. Year O net cash flow? Year 1? Year 2? Year 3? What is the new NPV? NPV and Modified ACRS In the previous problem, suppose the fixed asset actually falls into the three-year MACRS class. All the other facts are the same. What is the project's Year 1 net cash flow now? Year 2? Year 3? What is the new NPV? 5. Project Evaluation computer-based order entry system. The system will be depreciated straight-line to zero over its five-year life. It will be worth $50,000 at the end of that time. You will save $186,000 before taxes per year in order processing costs, and you will be able to reduce working capital by $85,000 (this is a one-time reduction). If the tax rate is 35 percent, what is the IRR for this project? 6. Your firm is contemplating the purchase of a new $530,000 7. Project Evaluation Dog Up! Franks is looking at a new sausage system with an
Het income of the investment for each year. b. Compute the incremental cash flows of the investment for each year. c. Suppose the appropriate discount rate is 12 percent. What is the NPV of the project? 3. Calculating Project NPV Down Under Boomerang, Inc., is considering a new three- year expansion project that requires an initial fixed asset investment of $1.65 million. The fixed asset will be depreciated straight-line to zero over its three-year tax life, after which it will be worthless. The project is estimated to generate $1.24 million in annual sales, with costs of $485,000. The tax rate is 35 percent and the required return is 12 percent. What is the project's NPV? Calculating Project Cash Flow from Assets In the previous problem, suppose the project requires an initial investment in net working capital of $285,000 and the fixed asset will have a market value of $225,000 at the end of the project. What is the project's 4. Year O net cash flow? Year 1? Year 2? Year 3? What is the new NPV? NPV and Modified ACRS In the previous problem, suppose the fixed asset actually falls into the three-year MACRS class. All the other facts are the same. What is the project's Year 1 net cash flow now? Year 2? Year 3? What is the new NPV? 5. Project Evaluation computer-based order entry system. The system will be depreciated straight-line to zero over its five-year life. It will be worth $50,000 at the end of that time. You will save $186,000 before taxes per year in order processing costs, and you will be able to reduce working capital by $85,000 (this is a one-time reduction). If the tax rate is 35 percent, what is the IRR for this project? 6. Your firm is contemplating the purchase of a new $530,000 7. Project Evaluation Dog Up! Franks is looking at a new sausage system with an
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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Hello, It is a three part question. However, I would like to know how the amount of 122, 265, was calculated in the solution provided for the book.
See attachment
Transcribed Image Text:Het income of the investment for each year.
b. Compute the incremental cash flows of the investment for each year.
c. Suppose the appropriate discount rate is 12 percent. What is the NPV of the
project?
3. Calculating Project NPV
Down Under Boomerang, Inc., is considering a new three-
year expansion project that requires an initial fixed asset investment of $1.65 million. The
fixed asset will be depreciated straight-line to zero over its three-year tax life, after which
it will be worthless. The project is estimated to generate $1.24 million in annual sales,
with costs of $485,000. The tax rate is 35 percent and the required return is 12 percent.
What is the project's NPV?
Calculating Project Cash Flow from Assets In the previous problem, suppose the
project requires an initial investment in net working capital of $285,000 and the fixed
asset will have a market value of $225,000 at the end of the project. What is the project's
4.
Year O net cash flow? Year 1? Year 2? Year 3? What is the new NPV?
NPV and Modified ACRS In the previous problem, suppose the fixed asset actually
falls into the three-year MACRS class. All the other facts are the same. What is the
project's Year 1 net cash flow now? Year 2? Year 3? What is the new NPV?
5.
Project Evaluation
computer-based order entry system. The system will be depreciated straight-line to zero
over its five-year life. It will be worth $50,000 at the end of that time. You will save
$186,000 before taxes per year in order processing costs, and you will be able to reduce
working capital by $85,000 (this is a one-time reduction). If the tax rate is 35 percent,
what is the IRR for this project?
6.
Your firm is contemplating the purchase of a new $530,000
7.
Project Evaluation Dog Up! Franks is looking at a new sausage system with an
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