Joanette, Incorporated, is considering the purchase of a machine that would cost $430,000 and would last for 5 years, at the end ofwhich, the machine would have a salvage value of $43,000. The machine would reduce labor and other costs by $103,000 per year.Additional working capital of $5,000 would be needed immediately, all of which would be recovered at the end of 5 years. Thecompany requires a minimum pretax return of 16% on all investment projects. (Ignore income taxes.)Click here to view Exhibit 148-1 and Exhibit 14B-2, to determine the appropriate discount factor(s) using the tables providedRequired:Determine the not present value of the project. (Negative amount should be indicated by a minus sign. Round your intermediatecalculations and final answer to the nearest whole dollar amount.)Net present value

An investor or company can forecast the profitability of a project or investment by using the Net…

Answered: Joanette, Incorporated, is considering…

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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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.
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?
Your company is considering the development of a new product. In evaluating the proposed project, your company has collected the following information: The company estimates that the project will last for five years. The company will need to purchase new machinery that has an up-front cost of $300 million. The machinery will be depreciated on a straight-line basis to zero over five years. At the end of the project, the machinery can be sold at an estimated market price of $50 million. Production of the new product will take place in a recently vacated facility that the company owns. Otherwise, the facility can be leased out to collect $5 million in rent per year for the company. The project will require a $50 million investment in inventory, and the company expects that its accounts payable will rise by $10 million as well. At the end of the project, the working capital will have been completely recovered. The company estimates that sales the new product will be $195 million each of…
Business Monkey is evaluating a 3-year project that would involve buying a new piece of equipment for $357,000.00 today. The equipment would be depreciated straight - line to $20,000.00 over 2 years. In 3 years, the equipment would be sold for an after - tax cash flow of $31,000.00. In each of the 3 years of the project, relevant revenues are expected to be $ 270,000.00 and relevant costs are expected to be $89, 200.00. The tax rate is 51.00% and the cost of capital for the project is 17.76%. What is the NPV of the project?$9, 707.00 (plus or minus $10) $82, 940.33 (plus or minus $ 10)$105, 294.88 (plus or minus $10) $38, 567.52 (plus or minus $10) None of the above is within $10 of the correct answer
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?
Kolby's Korndogs is looking at a new sausage system with an installed cost of $675,000. The asset qualifies for 100 percent bonus depreciation and can be scrapped for $89,000 at the end of the project's 5-year life. The sausage system will save the firm $191,000 per year in pretax operating costs, and the system requires an initial investment in net working capital of $43,000. If the tax rate is 24 percent and the discount rate is 8 percent, what is the NPV of this project? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.) NPV
Riguel Company is considering a long-term capital investment project in laser equipment. This will require an investment of $280,000, and it will have a useful life of 5 years. Annual net income is expected to be $16,000 a year. Depreciation is computed by the straight-line method with no salvage value. The company's cost of capital is 10%, and it desires a cash payback of 60% of a project's useful life or less. (Hint: Assume cash flows can be computed by adding back depreciation expense.) (Round all computations to two decimal places unless directed otherwise.) a. Compute the cash payback period for the project. b. Compute the net present value for the project. (Round to nearest dollar.) c. Compute the annual rate of return for the project. d. Should the project be accepted? Why or why not?
Brewster's is considering a project with a life of 5 years, an initial cost of $150,000, and a discount rate of 10 percent. The firm expects to sell 2,400 units a year at a cash flow per unit of $25. The firm will have the option to abandon this project after three years at which time it could sell the project for $40,000. At what level of sales should the firm be willing to abandon this project at the end of the third year?Answer in Excel Please
Pierre’s Hair Salon is considering opening a new location in French Lick, California. The cost of building a new salon is $284,000. A new salon will normally generate annual revenues of $60,490, with annual expenses (including depreciation) of $40,800. At the end of 15 years the salon will have a salvage value of $74,000.Calculate the annual rate of return on the project.

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