Johnny's Lunches is considering purchasing a new, energy-efficient grill. The grill will cost $19,000 and will be depreciated straight-line over 7 years to asalvage value of zero. The grill will have no effect on revenues, but will save Johnny's $20,000 in energy expenses. The tax rate is 31 percent.What are the operating cash flows in years 1 to 7?Enter your answer below.Number

Operating cash flows will be net cash flows that can be realized by the business after determining…

Answered: Johnny's Lunches 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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Subject: accounting
10. M&T Inc. is considering a robotic lawn care machine. Base price is $200,000. Also $20,000 to install it and can be depreciated using straight line depreciation. It will save $100,000 a year for 5 years in the cost of using an outside lawn care company. The tax rate is 30%. (a) What is up front year 0 capital flow. (b) What are net cash flows for years 1 through 5 assuming salvage value end of year 5 is $30,000?
Gaewelyn is considering opening a new business for a long-term care facility. The initial investment for the business is $650,000, which includes constructing the housing unit and purchasing other assets. For tax purposes, the projected salvage value of all the assets is $108,000. The government requires depreciating the assets using the straight-line method over the business's life of 15 years. Gaewelyn is trying to estimate the net cashflows after tax for this business. She has already figured out that the business will generate an annual after-tax cash inflow of $85,000 from the operation. She now needs your help to estimate the net cash inflow that she will receive from selling the facility's assets at the end of 15 years. Gaewelyn's required return is 8%. Required: (1) Gaewelyn estimates that, if the economic is booming at the end of the 15 years, she can sell the assets for $146,000. Assuming the tax rate of 30%, what is the net after-tax cashflow Gaewelyn will receive from…
You own a coal mining company and are considering opening a new mine. The mine will cost $119.5 million to open. If this money is spent immediately, the mine will generate $21.5 million for the next 10 years. After that, the coal will run out and the site must be cleaned and maintained at environmental standards. The cleaning and maintenance are expected to cost $1.6 million per year in perpetuity. What does the IRR rule say about whether you should accept this opportunity? If the cost of capital is 7.6%, what does the NPV rule say? NPV ($ mil पात 10 15 et Discount Rate (%) What does the IRR rule say about whether you should accept this opportunity? (Select the best choice below.) A. Accept the opportunity because the IRR is greater than the cost of capital. B. There are two IRRS, so you cannot use the IRR as a criterion for accepting the opportunity. O C. Reject the opportunity because the IRR is lower than the 7.6% cost of capital. D. The IRR is r= 11.46%, so accept the opportunity.…
Following the last question - John is evaluating the idea to open an ice cream shop on a piece of land. The followings are what he might include in the cash flows: Instead, John can earn $120,000 if he decides to sell the land today. He bought this land for $350,000 two years ago. • Outfitting the space for an ice cream shop would require a capital expenditure of $150,000 today. It'll require an investment of $30,000 in inventories for making the ice creams today. What are the opportunity costs of opening the ice cream shop? 1 · . -$120,000 O-$180,000 O-$350,000 O-$270,000 4
Johnny's Lunches is considering purchasing a new, energy-efficient grill. The grill will cost $32,000 and will be depreciated straight- line over 3 years. It will be sold for scrap metal after 5 years for $8,000. The grill will have no effect on revenues but will save Johnny's $16,000 in energy expenses. The tax rate is 30%. Required: a. What are the operating cash flows in each year? b. What are the total cash flows in each year? c. Assuming the discount rate is 12%, calculate the net present value (NPV) of the cash flow stream. Should the grill be purchased? Complete this question by entering your answers in the tabs below. Required A Required B Required C What are the operating cash flows in each year? (Do not round intermediate calculations. Round your answers to 2 decimal places.) Year 1 2 3 Operating Cash Flows
Johnny's Lunches is considering purchasing a new, energy-efficient grill. The grill will cost $38,000 and will be depreciated straight-line over 3 years. It will be sold for scrap metal after 5 years for $9,500. The grill will have no effect on revenues but will save Johnny's $19,000 in energy expenses. The tax rate is 30%. Required: What are the operating cash flows in each year? What are the total cash flows in each year? Assuming the discount rate is 12%, calculate the net present value (NPV) of the cash flow stream. Should the grill be purchased? (round answers to 2 decimal places)
You are the owner of a book store and you are considering adding a coffee bar to your store. The cost of the expansion will be $ 1 million, and you expect to depreciate it over the coffee bar’s four year life, using straight line depreciation to an expected salvage value of $ 500,000 at the end of the fourth year. You will also borrow $ 400,000 from a bank, using a four year balloon-payment loan (only interest paid for four years, the principal is due at the end of the fourth year) with an interest rate of 10%. The coffee bar is expected to generate $ 500,000 in revenues in the first year, $ 600,000 in revenues in the second year, $ 550,000 in the third year and $ 500,000 in the fourth year. The expenses of operating the bar are expected to be 40% of revenues each year and the tax rate is 35%. Estimate the return on equity on this investment each year for the next four years. If your cost of equity is 12%, would you invest in this coffee bar. If your cost of equity is 12%, estimate…
Alia wants to open up a sandwich shop in Amman. She collects data on the initial cost, operating and maintenance cost, yearly benefit (revenue from sandwich sales), and salvage value of the equipment she buys for the sandwich shop when she closes down the business in 5 years. Determine the best alternative using the annual cash flow analysis method for an interest rate of 8%. Do nothing is a possible alternative. Alt B $45,000 $25,000 $10,000 $4,000 $18,000 $13,000 $3,000 $6,000 Alt A First Cost Benefit per yr O&M annua st Salvage Value Life in years 5 (35 Points) Alt C $20,000 $1,900 $9,000 $4,600 Alt A $45,000 $10,000 and $18,000 Alt B $25,000 $4,000 $13,000 Alt C $20,000 $1.900 $9,000 First Cost Benefit per year Operations maintenance cost Salvage Value Life in years $3,000 $6.000 $4,600
You own a coal mining company and are considering opening a new mine. The mine will cost $117.1 million to open. If this money is spent immediately, the mine will generate $21.5 million for the next 10 years. After that, the coal will run out and the site must be cleaned and maintained at environmental standards. The cleaning and maintenance are expected to cost $1.9 million per year in perpetuity. What does the IRR rule say about whether you should accept this opportunity? If the cost of capital is 8.1%, what does the NPV rule say? Use the graph below to determine the IRR(s) in the problem. NPV ($ millions) 31- 21- NPV of the Investment in the Coal Mine 5 10 15 20 Discount Rate (%) What does the IRR rule say about whether you should accept this opportunity? (Select the best choice below.) A. Accept the opportunity because the IRR is greater than the cost of capital. O B. The IRR is r= 11.83%, so accept the opportunity. O C. Reject the opportunity because the IRR is lower than the 8.1%…
Johnny's Lunches is considering purchasing a new, energy-efficient grill. The grill will cost $29,000 and will be depreciated straight-line over 8 years to a salvage value of zero. The grill will have no effect on revenues, but will save Johnny's $13,000 in energy expenses. The tax rate is 37 percent. What are the operating cash flows in years 1 to 8?
Lowell Inc. is thinking about replacing an old computer with a new one. The new one will cost $1,000,000 and will have a life of FOUR years. The new computer qualifies as 5-year MACRS property. Years 1 2 3 4 Depreciation rate 20% 32% 19% 12% It will probably be worth about $330,000 after FOUR years. The old computer is being depreciated at a rate of $100,000 per year. It will be completely written off in FOUR years, at that time it will have zero resale value. We can sell it now for $410,000 after taxes. The new machine will save us $200,000 per year in operating costs. The tax rate (federal plus state) is 25 percent and WACC is 8 percent. What is the TOTAL FREE CASH FLOW FOR YEAR 4? Free cash flow = Total Initial Investment + Total annual project CF + Total Salvage Value 480,000 467,500 445,000 422,500

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