Joanette, Inc., is considering the purchase of a machine that would cost $460,000 and would last for 6 years, at the end of which, the machine would have a salvage value of $56,000. The machine would reduce labor and other costs by $116,000 per year. Additional working capital of $2,000 would be needed immediately, all of which would be recovered at the end of 6 years. The company requires a minimum pretax return of 17% on all investment projects. (Ignore income taxes.) Click here to view Exhibit 12B-1 e and Exhibit 12B-2 to determine the appropriate discount factor(s) using the tables provided. YOU MAY USE YOUR OWN PRESENT VALUE TABLES AS WELL. Required: Determine the net present value of the project. (Negative amount should be indicated by a minus sign. Round your intermediate calculations and final answer to the nearest whole dollar amount.)

Joanette, Inc., is considering the purchase of a machine that would cost $460,000 and would last for 6 years, at the end of which, the machine would have a salvage value of $56,000. The machine would reduce labor and other costs by $116,000 per year. Additional working capital of $2,000 would be needed immediately, all of which would be recovered at the end of 6 years. The company requires a minimum pretax return of 17% on all investment projects. (Ignore income taxes.) Click here to view Exhibit 12B-1 e and Exhibit 12B-2 to determine the appropriate discount factor(s) using the tables provided. YOU MAY USE YOUR OWN PRESENT VALUE TABLES AS WELL. Required: Determine the net present value of the project. (Negative amount should be indicated by a minus sign. Round your intermediate calculations and final answer to the nearest whole dollar amount.)

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

See similar textbooks

Similar questions

Cirice Corporation is considering opening a branch in another state. The operating cash flow will be $154,200 a year. The project will require new equipment costing $601,000 that would be depreciated on a straight-line basis to zero over the 6-year life of the project. The equipment will have a market value of $183,000 at the end of the project. The project requires an initial investment of $42,500 in net working capital, which will be recovered at the end of the project. The tax rate is 21 percent. What is the project's IRR?
You are evaluating the proposed acquisition of a new machine costing $63,000, and it falls into the MACRS 3-year class. Purchase of the machine would require an increase of net operating working capital of $5,000, which will be recovered when the machine is sold. The machine would increase the firm's revenues by $27,000 per year and its operating costs by $11,000 per year. The machine is expected to be used only for 3 years and then be sold for $22,000. The firm's marginal tax rate is 24 percent, and the project's cost of capital is 14 percent. What is the net cash flow at t=0, i.e., the initial cash flow? Question 9 options: $53,000 $55,000 $58,000 $61,000 $63,000 $68,000
Water's Edge Resorts is evaluating a project that would require an initial investment in equipment of $498,000.00 and that is expected to last for 4 years. MACRS depreciation would be used where the depreciation rates in years 1, 2, 3, 4, and 5 are 25%, 45%, 15%, 10, and 5%, respectively. For each year of the project, Water's Edge Resorts expects relevant annual revenue associated with the project to be $644000.00 and relevant annual costs associated with the project to be $479000.00. The tax rate is 44.00 percent. What is (X plus Y) if X is the relevant operating cash flow (OCF) associated with the project expected in year 1 of the project and Y is the relevant OCF associated with the project expected in year 4 of the project? $191,004.00 (plus or minus $10) O $261,492.00 (plus or minus $10) $294,360.00 (plus or minus $10) $103,356.00 (plus or minus $10) None of the above is within $10 of the correct answer
Amber Company is considering a one-year project that requires an initial investment of $500,000. However, to raise this capital, the company will incur flotation costs that are 2% of the initial investment amount. At the end of the year, the project is expected to produce a cash inflow of $576,000. What is the rate of return that the company expects to earn on this project after taking flotation costs into consideration?Your answer should be between 7.32 and 16.60, rounded to 2 decimal places, with no special characters. Your answer should be between 7.32 and 16.60, rounded to 2 decimal places, with no special characters.
The management of Ballard MicroBrew is considering the purchase of an automated bottling machine for $71,000. The machine would replace an old piece of equipment that costs $18,000 per year to operate. The new machine would cost $8,000 per year to operate. The old machine currently in use is fully depreciated and could be sold now for a salvage value of $26,000. The new machine would have a useful life of 10 years with no salvage value. Required: 1. What is the annual depreciation expense associated with the new bottling machine? 2. What is the annual incremental net operating income provided by the new bottling machine? 3. What is the amount of the initial investment associated with this project that should be used for calculating the simple rate of return? 4. What is the simple rate of return on the new bottling machine? (Round your answer to 1 decimal place i.e. 0.123 should be considered as 12.3%) 1. Depreciation expense 2. Incremental net operating income 3. Initial investment 4.…
Delia Landscaping is considering a new 4-year project. The necessary fixed assets will cost $193,000 and be depreciated on a 3-year MACRS and have no salvage value. The MACRS percentages each year are 33.33 percent, 44.45 percent, 14.81 percent, and 7.41 percent, respectively. The project will have annual sales of $130,000, variable costs of $34,900, and fixed costs of $12,800. The project will also require net working capital of $3,400 that will be returned at the end of the project. The company has a tax rate of 24 percent and the project's required return is 14 percent. What is the net present value of this project? Multiple Choice О $22,754 $21,601 $23,908 $19,801 $25.295
You are considering a three-year project. The project requires buying a piece of new equipment costing $300,000, which will be depreciated straight-line to zero over 3 years. At the end of the third year of operation, the equipment will be sold for $100,000. The new project will generate $500,000 in additional annual sales and will require $200,000 in additional annual cost excluding depreciation for the next three years. The project also requires an immediate investment in net working capital of $100,000, which will be fully recovered at the end of three years. The average tax rate for the company is 40%. What is the project cash flow (cash flow from assets) for year 3?
Gadubhai
A mine would require an investment of $5 million at the beginning of the first year and a further investment of $5 million at the end of the first year. Mining operations are expected to yield annual year-end profits of $1 million starting in Year 2. The ore body will sustain 10 years of mining operations. At the end of the last year of operations, the mining company would also have to spend $1 million on environmental restoration. Would the project provide the mining company with a rate of return exceeding its 10% cost of capital?
Wettway Sailboat Corporation is considering whether to launch its new Margo-class sailboat. The selling price will be $41,000 per boat. The variable costs will be about half that, or $20,000 per boat, and fixed costs will be $465,000 per year. The total investment needed to undertake the project is $3,100,000. This amount will be depreciated straight-line to zero over the 5-year life of the equipment. The salvage value is zero, and there are no working capital consequences. Wettway has a required return of 11 percent on new projects. FC + OCF-TCX D 1-TC P-v Use the above expression to find the cash, accounting, and financial break-even points for Wettway Sailboat. Assume a tax rate of 21 percent. (Do not round intermediate calculations and round your answers to 2 decimal places, e.g., 32.16.) Cash break-even Accounting break-even Financial break-even
Your company is considering a project which will require the purchase of $635,000 in new equipment. The company expects to sell the equipment at the end of the project for 25% of its original cost, but some assets will remain in the CCA class. Annual sales from this project are estimated at $224,000. Initial net working capital equal to 28.00% of sales will be required. All of the net working capital will be recovered at the end of the project. The firm requires an 8.00% return on similar investments. The tax rate is 35%, and the project life is 5 years. There are no other operating expenses. Assume the present value of the CCA tax shield is $102,000. What is the project's NPV? Options $126,121 $129,530 $132,939 $136,347 $139,756
Wettway Sailboat Corporation is considering whether to launch its new Margo-class sailboat. The selling price will be $48,000 per boat. The variable costs will be about half that, or $27,000 per boat, and fixed costs will be $535,000 per year. The total investment needed to undertake the project is $3,800,000. This amount will be depreciated straight-line to zero over the 6-year life of the equipment. The salvage value is zero, and there are no working capital consequences. Wettway has a required return of 18 percent on new projects. FC+ OCF-TCXD 1-TC Q== P-v Use the above expression to find the cash, accounting, and financial break-even points for Wettway Sailboat. Assume a tax rate of 23 percent. (Do not round intermediate calculations and round your answers to 2 decimal places, e.g., 32.16.) Answer is complete but not entirely correct. Cash break-even Accounting break-even Financial break-even 25.47 55.63 83.50

SEE MORE QUESTIONS

Recommended textbooks for you

Essentials Of Investments

Finance

ISBN:

9781260013924

Author:

Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Publisher:

Mcgraw-hill Education,

FUNDAMENTALS OF CORPORATE FINANCE

Finance

ISBN:

9781260013962

Author:

BREALEY

Publisher:

RENT MCG

Financial Management: Theory & Practice

Finance

ISBN:

9781337909730

Author:

Brigham

Publisher:

Cengage

Foundations Of Finance

Finance

ISBN:

9780134897264

Author:

KEOWN, Arthur J., Martin, John D., PETTY, J. William

Publisher:

Pearson,

Fundamentals of Financial Management (MindTap Cou…

Finance

ISBN:

9781337395250

Author:

Eugene F. Brigham, Joel F. Houston

Publisher:

Cengage Learning

Corporate Finance (The Mcgraw-hill/Irwin Series i…

Finance

ISBN:

9780077861759

Author:

Stephen A. Ross Franco Modigliani Professor of Financial Economics Professor, Randolph W Westerfield Robert R. Dockson Deans Chair in Bus. Admin., Jeffrey Jaffe, Bradford D Jordan Professor

Publisher:

McGraw-Hill Education

Essentials Of Investments

Finance

ISBN:

9781260013924

Author:

Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Publisher:

Mcgraw-hill Education,

FUNDAMENTALS OF CORPORATE FINANCE

Finance

ISBN:

9781260013962

Author:

BREALEY

Publisher:

RENT MCG

Financial Management: Theory & Practice

Finance

ISBN:

9781337909730

Author:

Brigham

Publisher:

Cengage

Foundations Of Finance

Finance

ISBN:

9780134897264

Author:

KEOWN, Arthur J., Martin, John D., PETTY, J. William

Publisher:

Pearson,

Fundamentals of Financial Management (MindTap Cou…

Finance

ISBN:

9781337395250

Author:

Eugene F. Brigham, Joel F. Houston

Publisher:

Cengage Learning

Corporate Finance (The Mcgraw-hill/Irwin Series i…

Finance

ISBN:

9780077861759

Author:

Stephen A. Ross Franco Modigliani Professor of Financial Economics Professor, Randolph W Westerfield Robert R. Dockson Deans Chair in Bus. Admin., Jeffrey Jaffe, Bradford D Jordan Professor

Publisher:

McGraw-Hill Education

SEE MORE TEXTBOOKS