Lamar Company is studying a project that would have an eight-vear life and require a S1,600,000 invest-ment in equipment. At the end of eight vears, the project would terminate and the equipment would haveno salvage value. The project would provide net income ench year as follows:Sales...Less: Variable expenses.$3,000,0001.800,000....Contribution margin.Less: Fixed expenses:Advertising, salaries, and otherfixed out-of-pocket costs.... .1,200,000$700,000Amortization200,000Total fixed expenses.900,000Net income...$ 300,000The company's discount rate is 18%.Required:1. Compute the net annual cash inflow from the project.2. Compute the project's net present value. Is the project acceptable?3. Compute the project's payback period. If the company requires a maximum payback of thethe project acceptable?4. Compute the project's simple rate of return.

The payback period is the time you need to recover the cost of your investment. In simple terms, it…

Lamar Company is studying a project that would have an eight-year life and require a S1.600,000 invest- ment in equipment. At the end of eight vears, the project would terminate and the equipment would have no salvage value. The project would provide net income each year as follows Sales... Less: Variable expenses. Contribution margin... Less: Fixed expenses: $3.000.000 ............ 1.800.000 ....... 1,200.000 ..... Advertising, salaries, and other fixed out-of-pocket costs $700,000 ............ Amortization 200,000 ..... Total fixed expenses.... 900,000 Net income..... $ 300,000 ...... The company's discount rate is 18%. Required: 1. Compute the net annual cash inflow from the project

Lamar Company is studying a project that would have an eight-year life and require a S1.600,000 invest- ment in equipment. At the end of eight vears, the project would terminate and the equipment would have no salvage value. The project would provide net income each year as follows Sales... Less: Variable expenses. Contribution margin... Less: Fixed expenses: $3.000.000 ............ 1.800.000 ....... 1,200.000 ..... Advertising, salaries, and other fixed out-of-pocket costs $700,000 ............ Amortization 200,000 ..... Total fixed expenses.... 900,000 Net income..... $ 300,000 ...... The company's discount rate is 18%. Required: 1. Compute the net annual cash inflow from the project

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

See similar textbooks

Similar questions

Slate Corp is a merchandising company that uses the periodic inventory system. Balances Sales 500,000 Purchases 225,000 Inventory (beginning ) 16,000 Inventory (ending) 30,000 Operating expenses 148,000 Income tax expense 10,000 Retained earnings (beginning) 53,000 Dividends 15,000 What is the net income?
Compute the (i) net present value and (ii) internal rate of return of the following Q2. capital budgeting projects. The firm's required rate of return is 15 percent. Based on the NPV which project should be ассеpted. [8] Projects Year X Y 50,000 45,000 1 10,000 12,000 2 30,000 10,000 3 25,000 14,000
3. Consider an individual whose income stream is (200,120) in a situation where he is faced with the choice of 3 economically independent projects, alpha, beta and gamma. The market interest rate is 50%. The cash flows for the three projects are as follows: Project Co C₁ Alpha Beta -20 24 Gamma 10 -12 a) Which projects (if any) would the individual invest in? b) How much would he end up consuming in time 0? c) How much would he end up consuming in time 1? d) Show that the individual is better off with the investments than if he just consumed according to his income pattern. -12 30
The Rosebud Motel is a must-stay for any road-tripper or weary traveler. The motel fils each of its 24 rooms for 200 nights each during the year. Annual fixed costs total $160,000. The variable cost of one night's stay is $100. The motel owners expect a 50% return on the company's $500,000 of assets each year. The Rosebud Motel is currently the only place to stay for 50 miles. What should Rosebud's cost-plus price be if sales volume and costs are expected to stay consistent? OA. $133.33 OB. $185.42 OC. $2,150.00 OD. $152.08 OE. The Rosebud Motel would not set its price as it is a price-taker in this market.
Last year, a company introduced a new version of its main product. The product costs $24002400 to develop (i.e. the start up costs) and $3535 to manufacture each product. Do all the following problems on your page: i) Give a linear equation in the form C(n)=mn+bC(n)=mn+b that gives the total cost to produce nn of these products. Give your answer in function notation. No steps or work are required, just give the function. ii) Find the total cost to produce n=3500n=3500 of these products. Show what numbers you used in your arithmetic calculations. Use function notation in your work. Answer in a complete sentence form with units and context. iii) If the company has $5315053150, how many of these items can be produced? Use function notation in your work. Answer in a complete sentence form with units and context.
2- A rough rule of thumb for the chemical industry is that OMR 1 of annual sales required OMR 2 of fixed capital investment. In a chemical processing plant where this rule applies, the total capital investment is OMR 3200000 and the working capital is 18% of the total capital investment. The annual net total product cost amounts to 1500000 OMR. If the income tax rates on gross earnings total 21%, determine the following: (a) Percent of total capital investment returned annually as gross earning. (b) Percent of total capital investment returned annually as net profit.
Siemens AG invests €80,000,000 to build a manufacturing plant to build wind turbines. The company predicts net cash flows of €16,000,000 per year for the next 8 years. Assume the company requires an 8% rate of return from its investments. (PV of $1. FV of $1. PVA of $1, and FVA of $1) (Use appropriate factor(s) from the tables provided. Round your present value factor to 4 decimals.) (1) What is the payback period of this investment? (2) What is the net present value of this investment? Complete this question by entering your answers in the tabs below. Required 1 Required 2 What is the payback period of this investment? Payback Period Choose Numerator: 1 1 Choose Denominator: ‒‒‒ www Next >
NPV Calculate the net present value (NPV) for the following 12-year projects. on the acceptability of each. Assume that the firm has a cost of capital of 7%. a. Initial investment is $1,000,000; cash inflows are $ 160,000 per Year b. Initial investment is $2,500,000; cash inflows are $320,000 per Year Using Excel to answer. Show all Formulas
What process does the net present value method use to help management determine whether a project is acceptable to a company? Options : A. It discounts net cash flows to their present value and then compares that value to the capital outlay required by the project.B. It determines the interest rate that will cause the present value of the capital expenditure to equal the present value of the expected net cash flows.C. It divides the present value of net cash flows by the initial investment to determine the profitability index of the project.D. It identifies the time period required to recover the cost of the capital investment from the net annual cash flow produced by the project.
The common stock of Eddie's Engines, Inc. sells for $15.75 a share. The stock is expected to pay S0.75 per share next month when the annual dividend is distributed. Eddie's has established a pattern of increasing its dividends by 4% annually and expects to continue doing so. What is the market rate of return on this stock? A. 8.26% B.11.34% C 10.12% D.14.97% E. 15%
The following data relate to the operations of Shilow Company, a wholesale distributor of consumer goods: Current assets as of March 31: Cash Accounts receivable Inventory Buildings and equipment, net Accounts payable Common shares Retained earnings a. The gross margin is 25% of sales. b. Actual and budgeted sales data are as follows: March (actual) April May June $50,000 $60,000 $72,000 $ 8,000 20,000 36,000 120,000 21,750 150,000 12,250 July $90,000 $48,000 c. Sales are 60% for cash and 40% on credit. Credit sales are collected in the month following sale. The accounts receivable at March 31 are the result of March credit sales. d. Each month's ending inventory should equal 80% of the following month's budgeted cost of goods sold. e. One-half of a month's inventory purchases is paid for in the month of purchase; the other one-half is paid for in the following month. The accounts payable at March 31 are the result of March purchases of inventory. f. Monthly expenses are as follows:…
Suppose that you undertook an investment pro- ject with the following estimated cash flows: n An AT 0 -$152,000 1 42,400 2 53,400 3 52,500 4 62,500 5 33,000 At the end of year 3, you have received an offer to buy the project from another firm; what minimum price would be the fair price to ask? Here your required return on investment is 15%.