Hungry Whale Electronics is considering an investment that will have the following sales, variable costs, and fixed operating costs: Sales (units) Sales price Variable cost per unit Fixed costs, excluding depreciation Accelerated depreciation rate Year 1 Year 2 4,200 4,100 $29.82 $30.00 $12.15 $13.45 $41,000 $41,670 33% 45% When using acc lerated depreciation, project's net present This project will require an investment of $10,000 in new equipment. The equipment will have no salvage value at the end of the project's four-year life. Hungry Whale Electronics pays a constant tax rate of 40%, and it has a required rate of return of 11%. When using straight-line depreciation, the project's NPV is Using the Year 3 4,300 $30.31 $14.02 $41,890 15% Year 4 4,400 $33.19 $14.55 $40,100 7% (NPV) is depreciation method will result in the greater NPV for the project.
Hungry Whale Electronics is considering an investment that will have the following sales, variable costs, and fixed operating costs: Sales (units) Sales price Variable cost per unit Fixed costs, excluding depreciation Accelerated depreciation rate Year 1 Year 2 4,200 4,100 $29.82 $30.00 $12.15 $13.45 $41,000 $41,670 33% 45% When using acc lerated depreciation, project's net present This project will require an investment of $10,000 in new equipment. The equipment will have no salvage value at the end of the project's four-year life. Hungry Whale Electronics pays a constant tax rate of 40%, and it has a required rate of return of 11%. When using straight-line depreciation, the project's NPV is Using the Year 3 4,300 $30.31 $14.02 $41,890 15% Year 4 4,400 $33.19 $14.55 $40,100 7% (NPV) is depreciation method will result in the greater NPV for the project.
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
Related questions
Question
![No other firm would take on this project if Hungry Whale Electronics turns it down. How much should Hungry Whale Electronics reduce the NPV of this
project if it discovered that this project would reduce one of its division's net after-tax cash flows by $500 for each year of the four-year project?
$1,551
$931
O $1,318
O $1,706
Hungry Whale Electronics spent $2,750.00 on a marketing study to estimate the number of units that it can sell each year. What should Hungry Whale
Electronics do to take this information into account?
The company does not need to do anything with the cost of the marketing study because the marketing study is a sunk cost.
O Increase the amount of the initial investment by $2,750.00.
O Increase the NPV of the project $2,750.00.](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2Ff8a86740-781a-4204-bc63-549b5147664d%2F293cc032-c7fa-4e35-ac97-f4d95f7a15b1%2Fmpmw88c_processed.jpeg&w=3840&q=75)
Transcribed Image Text:No other firm would take on this project if Hungry Whale Electronics turns it down. How much should Hungry Whale Electronics reduce the NPV of this
project if it discovered that this project would reduce one of its division's net after-tax cash flows by $500 for each year of the four-year project?
$1,551
$931
O $1,318
O $1,706
Hungry Whale Electronics spent $2,750.00 on a marketing study to estimate the number of units that it can sell each year. What should Hungry Whale
Electronics do to take this information into account?
The company does not need to do anything with the cost of the marketing study because the marketing study is a sunk cost.
O Increase the amount of the initial investment by $2,750.00.
O Increase the NPV of the project $2,750.00.
![Hungry Whale Electronics is considering an investment that will have the following sales, variable costs, and fixed operating costs:
Sales (units)
Sales price
Variable cost per unit
Fixed costs, excluding depreciation
Accelerated depreciation rate
Year 1
Year 2
4,200
4,100
$29.82 $30.00
$12.15 $13.45
$41,000
33%
Year 3
4,300
$30.31
$14.02
$41,670 $41,890
45%
15%
This project will require an investment of $10,000 in new equipment. The equipment will have no salvage value at the end of the project's four-year
life. Hungry Whale Electronics pays a constant tax rate of 40%, and it has a required rate of return of 11%.
When using accelerated depreciation, the project's net present value (NPV) is
Using the
When using straight-line depreciation, the project's NPV is
Year 4
4,400
$33.19
$14.55
$40,100
7%
depreciation method will result in the greater NPV for the project.](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2Ff8a86740-781a-4204-bc63-549b5147664d%2F293cc032-c7fa-4e35-ac97-f4d95f7a15b1%2F4za8bxy_processed.jpeg&w=3840&q=75)
Transcribed Image Text:Hungry Whale Electronics is considering an investment that will have the following sales, variable costs, and fixed operating costs:
Sales (units)
Sales price
Variable cost per unit
Fixed costs, excluding depreciation
Accelerated depreciation rate
Year 1
Year 2
4,200
4,100
$29.82 $30.00
$12.15 $13.45
$41,000
33%
Year 3
4,300
$30.31
$14.02
$41,670 $41,890
45%
15%
This project will require an investment of $10,000 in new equipment. The equipment will have no salvage value at the end of the project's four-year
life. Hungry Whale Electronics pays a constant tax rate of 40%, and it has a required rate of return of 11%.
When using accelerated depreciation, the project's net present value (NPV) is
Using the
When using straight-line depreciation, the project's NPV is
Year 4
4,400
$33.19
$14.55
$40,100
7%
depreciation method will result in the greater NPV for the project.
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