ihuing with their analysis with the goal of opening a walk- in clinic. After conducting additional research, the financial projections for the first year of operations are as follows: • Revenues (from 10,000 visits): $400,000 Wages and benefits: $220,000 Rent: $5,000 Depreciation: $30,000 • Utilities: $2,500 • Medical supplies: $50,000 Administrative supplies: $10,000 Assume that all costs are fixed except supply costs, which are variable. Assume that the clinic will he

ihuing with their analysis with the goal of opening a walk- in clinic. After conducting additional research, the financial projections for the first year of operations are as follows: • Revenues (from 10,000 visits): $400,000 Wages and benefits: $220,000 Rent: $5,000 Depreciation: $30,000 • Utilities: $2,500 • Medical supplies: $50,000 Administrative supplies: $10,000 Assume that all costs are fixed except supply costs, which are variable. Assume that the clinic will he

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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Temporary Housing Services Incorporated (THSI) is considering a project that involves setting up a temporary housing facility in an area recently damaged by a hurricane. THSI will lease space in this facility to various agencies and groups providing relief services to the area. THSI estimates that this project will initially cost $4.87 million to setup and will generate $20 million in revenues during its first and only year in operation (paid in one year). Operating expenses are expected to total $12 million during this year and depreciation expense will be another $3 million. THSI will require no working capital for this investment. THSI's marginal tax rate is 35%. Assume that THSI's cost of capital is 14.6% p.a. Compute the NPV of the temporary housing facility to the nearest dollar
You are an employee of University Consultants, Limited, and have been given the following assignment. You are to present an investment analysis of a small retail income-producing property for sale to a potential investor. The asking price for the property is $1,360,000; rents are estimated at $174,080 during the first year and are expected to grow at 2.5 percent per year thereafter. Vacancies and collection losses are expected to be 10 percent of rents. Operating expenses will be 35 percent of effective gross income. A fully amortizing 70 percent loan can be obtained at 6 percent interest for 30 years (total annual payments will be monthly payments × 12). The property is expected to appreciate in value at 3 percent per year and is expected to be owned for five years and then sold. Required: a. What is the first-year debt coverage ratio? b. What is the terminal capitalization rate? c. What is the investor’s expected before-tax internal rate of return on equity invested (BTIRR)? d.…
The investment committee of Granny’s Restaurants Inc. is evaluating two restaurant sites. The sites have different useful lives, but each requires an investment of $1,200,000. The estimated net cash flows from each site are as follows: Net Cash Flows Year Helena Butte 1 $375,000 $500,000 2 $375,000 $500,000 3 $375,000 $500,000 4 $375,000 $500,000 5 $375,000 6 $375,000 The committee has selected a rate of 20% for purposes of net present value analysis. It also estimates that the residual value at the end of each restaurant’s useful life is $0, but at the end of the fourth year, Helena’s residual value would be $500,000. Instructions: Using formulas/functions wherever available, complete the following on the Input tab… For each site, compute the net present value,…
Ten physicians have just completed their residencies in internal medicine and are considering opening a group practice. They estimate the practice would have the following annual cost structure: You must show your calculation to receive credit. Annual fixed costs Variable cost per visit $750,000 $ 50 If volume in the first year is estimated to be 10,000 visits, what price per visit must be set if the practice wants to make an annual profit of $160,000?
You are an employee of University Consultants, Limited, and have been given the following assignment. You are to present an investment analysis of a small retail income-producing property for sale to a potential investor. The asking price for the property is $1,430,000; rents are estimated at $183,040 during the first year and are expected to grow at 2.5 percent per year thereafter. Vacancies and collection losses are expected to be 10 percent of rents. Operating expenses will be 35 percent of effective gross income. A fully amortizing 70 percent loan can be obtained at 8 percent interest for 30 years (total annual payments will be monthly payments × 12). The property is expected to appreciate in value at 4 percent per year and is expected to be owned for five years and then sold. Required: a. What is the first-year debt coverage ratio? b. What is the terminal capitalization rate? c. What is the investor’s expected before-tax internal rate of return on equity invested (BTIRR)? d. What…
Below are the projected revenues and expenses for a new clinical nurse specialist program being established by a hospital. Nurses would provide education while the patient is in the hospital and home visits after patient discharge on a fee-for-service basis. Should the hospital undertake the program if its required rate of return is 12%? Year 1 Year 2 Year 3 Year 4 Total Revenue costs 100,000 150,000 200,000 250,000 700,000 150,000 150,000 150,000 150,000 600,000 (50,000) 0 50,000 100,000 100,000
A small textile plant was constructed in 2000. The major equipment, costs, and factors are shown below. Estimate the cost to build a new plan the past 8 years. Next Question for this type of equipment has increased at an average rate of 14% per year for Equipment Reference Size Reference Cost Cost-Capacity Factor New Design Size Finishing machine Jet dyer Steam dyer $825,000 160 yd/min 220 yd/min 100 yd/min 200 yd/min 460 yd/min 175 yd/min 0.92 $1,200,000 0.85 $750,000 0.77 Choose the correct answer below. O A Estimated cost for a new plant is $22,770,834. O B. Estimated cost for a new plant is $10,491,057. O C. Estimated cost for a new plant is $12,589,268. O D. Estimated cost for a new plant is $1,547,116.
Alva Community Hospital has five laboratory technicians who are responsible for doing a seriesof standard blood tests. Each technician is paid a salary of $30,000. The lab facility representsa recent addition to the hospital and cost $300,000. It is expected to last 20 years. Equipmentused for the testing cost $10,000 and has a life expectancy of 5 years. In addition to the salaries,facility, and equipment, Alva expects to spend $200,000 for chemicals, forms, power, and othersupplies. This $200,000 is enough for 200,000 blood tests.Required:Assuming that the driver (measure of output) for each type of cost is the number of blood testsrun, classify the costs by completing the following table. Put an X in the appropriate box forvariable cost, discretionary fixed cost, or committed fixed cost.
You are an employee of University Consultants, Limited, and have been given the following assignment. You are to present an investment analysis of a small retail income-producing property for sale to a potential investor. The asking price for the property is $1,350,000; rents are estimated at $172,800 during the first year and are expected to grow at 2.5 percent per year thereafter. Vacancies and collection losses are expected to be 10 percent of rents. Operating expenses will be 35 percent of effective gross income. A fully amortizing 70 percent loan can be obtained at 7 percent interest for 30 years (total annual payments will be monthly payments × 12). The property is expected to appreciate in value at 3 percent per year and is expected to be owned for five years and then sold. Required: a. What is the first-year debt coverage ratio? b. What is the terminal capitalization rate? c. What is the investor’s expected before-tax internal rate of return on equity invested (BTIRR)? d.…
Happy Trails Senior Living Community is considering investing in solar panels to save on utility costs. The initial cost of the panels, including installation, is $250,000. The expected reduction in utility costs are noted below. Utility costs savings for the next five years are: Year 1: $65,000 Year 2: $68,250 Year 3: $71,663 Year 4: $75,246 Year 5: $79,008 The current interest rate used to evaluate investment decisions is 6%. The inflation rate is expected to remain constant at 3% for the entire period. Instructions (a) Compute the present value of the expected cash flows (savings). (b) Should Happy Trails move forward with the investment?
Lerner College, a not-for-profit liberal arts college, charges the total cost of running its research library to its three academic programs: the humanities, the social sciences, and the sciences. Rent and utilities for the library space costs $30,000 per month. Salaries for the library’s employees total $275,000 per year, plus an additional 24% for benefits. The depreciation on the library's office equipment is $32,000 each year. Other library expenses – including supplies, books, subscriptions – are equal to $14,000 per month. The total cost of running the research library is allocated to each of the three academic programs based on the number of students in each of the three programs. The humanities program has 440 students; the social sciences program has 390 students; the sciences program has 260 students. The teaching staff for the social sciences program earns $650,000 per year in salaries and benefits. In addition, the social sciences program consumes $9,500 of supplies each…
You are an employee of University Consultants, Limited, and have been given the following assignment. You are to present an investment analysis of a small retail income-producing property for sale to a potential investor. The asking price for the property is $1,400,000; rents are estimated at $179,200 during the first year and are expected to grow at 2.5 percent per year thereafter. Vacancies and collection losses are expected to be 10 percent of rents. Operating expenses will be 35 percent of effective gross income. A fully amortizing 70 percent loan can be obtained at 8 percent interest for 30 years (total annual payments will be monthly payments 12). The property is expected to appreciate in value at 3 percent per year and is expected to be owned for five years and then sold. Required: a. What is the first-year debt coverage ratio? b. What is the terminal capitalization rate? c. What is the investor's expected before-tax internal rate of return on equity invested (BTIRR)? d. What is…

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