Joanette, Incorporated, is considering the purchase of a machine that would cost $620,000 and would last for 10 years, at the end ofwhich, the machine would have a salvage value of $62,000. The machine would reduce labor and other costs by $122,000 per year.Additional working capital of $8,000 would be needed immediately, all of which would be recovered at the end of 10 years. Thecompany requires a minimum pretax return of 16% on all investment projects. (Ignore income taxes.)Click here to view Exhibit 14B-1 and Exhibit 14B-2, to determine the appropriate discount factor(s) using the tables provided.Required:Determine the net 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

Step 1:We have to calculate the net present value of the project. The formula of the net present…

Answered: Joanette, Incorporated, is considering…

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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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?
A proposed gold mine would require the investment of $2.65 million at the beginning of the first year and a further investment of $4.6 million at the end of the first year. Mining operations are expected to yield annual year-end profits of $2 million starting in year three. The mine will sustain eight years of mining operations, once it reaches profit. At the end of the last year of operations, the mining company would also have to spend $2 million on environmental restoration. Would the project provide the mining company with a rate of return exceeding its 12% cost of capital? If the rate of return was 8%, how much more/less would the NPV be? Multiple Choice о O Yes, $769,255 More $1,498,732 No, $519,255 Less $1,498,732 Yes, $519,255 Less $1,498,732 Yes, $519,255 More $1,923,732 Yes, $519,255 More $1,498,732
Halloween, Inc., is considering a new product launch. The firm expects to have an annual operating cash flow of $9.0 million for the next 9 years. The discount rate for this project is 12 percent for new product launches. The initial investment is $37.5 million. Assume that the project has no salvage value at the end of its economic life. A) What is the NPV of the new product? B) After the first year, the project can be dismantled and sold for $26.1 million. If the estimates of remaining cash flows are revised based on the first year’s experience, at what level of expected cash flows does it make sense to abandon the project?
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?
ACF Manufacturing is considering a 12-year opportunity to invest in a new production facility. The company has estimated that the project will require an initial investment of $70 million and will generate after-tax free cash flows of $11.75 million per year over the twelve-year life of the project. You further estimate that if things go badly in the first two years of the project, you will be able to abandon the project and salvage the equipment and facilities for $52 million (net of taxes). The decision to abandon must be made at time 2 or not at all. If the volatility of returns from the project is 25%, the risk-free interest rate is 3.5%, and the project required return is 14%, what is the value of the project including the option to abandon? Use the Black-Scholes calculator to solve this problem.
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?
Kolby’s Korndogs is looking at a new sausage system with an installed cost of $680,000. The asset qualifies for 100 percent bonus depreciation and can be scrapped for $90,000 at the end of the project’s 5-year life. The sausage system will save the firm $193,000 per year in pretax operating costs, and the system requires an initial investment in net working capital of $45,000. If the tax rate is 25 percent and the discount rate is 9 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.)
Joanette, Incorporated, is considering the purchase of a machine that would cost $430,000 and would last for 5 years, at the end of which, 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. The company 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 provided Required: Determine the not 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.) Net present value
Dog Up! Franks is looking at a new sausage system with an initial cost of $435,000 that will last for five years. The fixed asset will qualify for 100 percent bonus depreciation in the first year, at the end of which the sausage system can be scrapped for $49,000. The sausage system will save the firm $137,000 per year in pretax operating costs, and the system requires an initial investment in net working capital of $24,000. If the tax rate is 21 percent and the discount rate is 9 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.)
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
Eggz, Incorporated, is considering the purchase of new equipment that will allow the company to collect loose hen feathers for sale. The equipment will cost $490,000 and will be eligible for 100 percent bonus depreciation. The equipment can be sold for $84,000 at the end of the project in 5 years. Sales would be $327,000 per year, with annual fixed costs of $60,000 and variable costs equal to 35 percent of sales. The project would require an investment of $51,000 in NWC that would be returned at the end of the project. The tax rate is 23 percent and the required return is 8 percent. Calculate the NPV of this project. Note: Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16. NPV 348437.32
Crane Company is considering buying a new farm that it plans to operate for 10 years. The farm will require an initial investment of $11.85 million. This investment will consist of $2.70 million for land and $9.15 million for trucks and other equipment. The land, all trucks, and all other equipment are expected to be sold at the end of 10 years for a price of $5.05 million, which is $2.50 million above book value. The farm is expected to produce revenue of $2.00 million each year, and annual cash flow from operations equals $1.80 million. The marginal tax rate is 35 percent, and the appropriate discount rate is 10 percent. Calculate the NPV of this investment. (Do not round factor values. Round final answer to 2 decimal places, e.g. 15.25.) NPV The project should be

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