Initial investmentPretax salvage valueCost savings per year535,00030,000150,000Cost savings per year100,000Working capital reduction$60,000Annual depreciation charge$Aftertax salvage value6969107,00022,800Tax rateRequired return*Depreciation straight-lineover life24%11%5Output area:$NPV150,000cost savings$100,000YearCash flowYear0 $(475,000)0 $1139,68012139,6803139,6804139,6805102,4802345Accept/RejectRequired pretax cost savings:NPV w/o OCFRequired OCFOCF less dep. tax shieldCost savings69 69 69$(497,076.39)$134,494.11$108,814.11cost savingsCash flow(475,000)101,680101,680101,680101,68064,480

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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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Juniper Corporation is considering two alternative investment proposals with the following data: Proposal X Proposal Y Investment $810,000 $466,000 Useful life 8 years 8 years Estimated annual net cash inflows for 8 years $130,000 $70,000 Residual value $58,000 $− Depreciation method Straight−line Straight−line Required rate of return 13% 10% What is the accounting rate of return for Proposal X? (Round any intermediary calculations to the nearest dollar, and round your final answer to the nearest hundredth of a percent, X.XX%.)
MACHINE A MACHINE B INITIAL COST R100 000 R110 000 EXPECTED ECONOMIC LIFE 5 YEARS 5 YEARS EXPECTED DISPOSAL/RESIDUAL VALUE R10 000 EXPECTED NET CASH INFLOWS R R END OF: YEAR 1 34 000 33 000 YEAR 2 27 000 33 000 YEAR 3 32 000 33 000 YEAR 4 30 000 33 000 YEAR 5 26 000 33 000 DEPRECIATION PER YEAR 18 000 22 000 COMPANY ESTIMATES COST CAPITAL = 14% 3)Calculate the net present value of each machine
MACHINE A MACHINE B INITIAL COST R100 000 R110 000 EXPECTED ECONOMIC LIFE 5 YEARS 5 YEARS EXPECTED DISPOSAL/RESIDUAL VALUE R10 000 EXPECTED NET CASH INFLOWS R R END OF: YEAR 1 34 000 33 000 YEAR 2 27 000 33 000 YEAR 3 32 000 33 000 YEAR 4 30 000 33 000 YEAR 5 26 000 33 000 DEPRECIATION PER YEAR 18 000 22 000 COMPANY ESTIMATES COST CAPITAL = 14% 4)Calculate the internal rate of return for Machine B.
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Estimated sales Sales Price per can Cost per can Estimated life Fixed costs Tax rate Initial equipment cost Initial equipment cost will be linearly depreciated over 4 year life with $10,000 salvage value Investment in NWC 50,000 cans $6.00 $3.00 4 years $10,000/year $100,050 $196,500 $116,000 $153,200 $90,000 Cost of capital What is the operating cash flow? $20,000 20% 10%
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A1
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