Lander Company has an opportunity to pursue a capital budgeting project with a five-year time horizon. Lander estimated thefollowing costs and revenues for the project:Cost of equipment neededWorking capital neededRepair of the equipment in two yearsAnnual revenues and costs:Sales revenuesVariable expensesFixed out-of-pocket operating costs$ 320,000$ 69,000$ 22,500$ 440,000$ 225,000$ 98,000The piece of equipment mentioned above has a useful life of five years and zero salvage value. Lander uses straight-line depreciationfor financial reporting and tax purposes. The company's tax rate is 30% and its after-tax cost of capital is 11%. When the projectconcludes in five years, the working capital will be released for investment elsewhere within the company.Click here to view Exhibit 14B-1 and Exhibit 14B-2, to determine the appropriate discount factor(s) using tables.2. Net present valueRequired:1. Calculate the net present value of this investment opportunity.Note: Negative amounts should be indicated by a minus sign. Round your final answer to the nearest whole dollar.Answer is complete but not entirely correct.(58,170) X

NPV (Net Present Value) is a financial metric used to evaluate the profitability of an investment by…

Answered: Lander Company has an opportunity to…

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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Required information. [The following information applies to the questions displayed below.] Project Y requires a $331,500 investment for new machinery with a five-year life and no salvage value. The project yields the following annual results. Cash flows occur evenly within each year. (PV of $1. FV of $1. PVA of $1. and FVA of $1) Note: Use appropriate factor(s) from the tables provided. Annual Amounts Sales of new product Expenses Materials, labor, and overhead (except depreciation). Depreciation Machinery Selling, general, and administrative expenses Income Years 1-5 4. Determine Project Y's net present value using 9% as the discount rate. Note: Do not round intermediate calculations. Round your present value factor to 4 decimals and final answers to the nearest whole dollar. Net present value Not Cash Flows Project Y $ 400,000 Present Value of Annuity at 9% 179,200 66,300 29,000 $ 125,500 Present Value of Net Cash Flows
Required Information [The following information applies to the questions displayed below.] Project Y requires a $327,000 investment for new machinery with a four-year life and no salvage value. The project yields the following annual results. Cash flows occur evenly within each year. (PV of $1, FV of $1, PVA of $1, and FVA of $1) Note: Use appropriate factor(s) from the tables provided. Annual Amounts Sales of new product Expenses Materials, labor, and overhead (except depreciation) Depreciation-Machinery Selling, general, and administrative expenses Income Project Y $ 360,000 161,280 81,750 26,000 $ 90,970 2. Determine Project Y's payback period. Project Y Payback Period Numerator: 1 Denominator: 1 Payback Period = 0
The management Biden ltd intends to replace it existing two-year-old milk scheming machine whose original cost wash. 1000,000. The machine is two years old and it has a current market value of sh 700,000. The capital budgeting analysts believe that the machine has five more years of useful life. At the end of the five years, the asset will have a zero-salvage value. The netbook value of the machine is sh 800,000. The management is contemplating the purchase of a new machine to replace the old one. The new machine costs sh 1,600,000 and installation estimated at sh 300,000. It has an estimated salvage value of shs. 200,000 at the end of five-year useful life. The new machine will have a greater technological capacity and therefore annual sales are expected to increase by sh 240,000 operating efficiencies with the new machine will produce an expected savings of shs 260,000 a year. The company uses modified accelerated capital recovery depreciation method of 23% ,17%,20% ,21% and 19% from…
The production department is proposing the purchase ONE automatic insertion machine. It has identified three machines (A, B and C). Each machine has an estimated useful life of 10 years. minimum desired rate of return of 10%. The accountant has identified the following data: Machine A Machine B Machine C Present value of future cash flows computed using 10% rate of return $305,000 $295,000 $300,500 Amount of initial investment 300,000 300,000 300,000 Based on net present value method, which machine do you recommend?
Consider a project to supply Detroit with 28,000 tons of machine screws annually for automobile production. You will need an initial $5,800,000 investment in threading equipment to get the project started; the project will last for 6 years. The accounting department estimates that annual fixed costs will be $1,400,000 and that variable costs should be $265 per ton; accounting will depreciate the initial fixed asset investment straight-line to zero over the 6-year project life. It also estimates a salvage value of $775,000 after dismantling costs. The marketing department estimates that the automakers will let the contract at a selling price of $380 per ton. The engineering department estimates you will need an initial net working capital investment of $560,000. You require a return of 14 percent and face a tax rate of 25 percent on this project. a-1. What is the estimated OCF for this project? (Do not round intermediate calculations and round your answer to the nearest whole…
[The following information applies to the questions displayed below.] Cardinal Company is considering a five-year project that would require a $2,955,000 investment in equipment with a useful life of five years and no salvage value. The company’s discount rate is 18%. The project would provide net operating income in each of five years as follows: Sales $ 2,865,000 Variable expenses 1,015,000 Contribution margin 1,850,000 Fixed expenses: Advertising, salaries, and other fixed out-of-pocket costs $ 750,000 Depreciation 591,000 Total fixed expenses 1,341,000 Net operating income $ 509,000 Click here to view Exhibit 12B-1 and Exhibit 12B-2, to determine the appropriate discount factor(s) using table. rev: 05_11_2019_QC_CS-168512 7. What is the project’s payback period?
The company is considering a project involving the purchase of new equipment. Cost of equipment needed $420,000 Working capital needed $45,000 Overhaul of equipment in four years $35,000 Salvage value of the equipment in five years is $35,000 Annual revenues and costs: Sales revenues $385,000 Cost of goods sold $210,000 Out-of- pocket operating costs $65,000 Discount rate is 11 % . What is the net present value of the project? The internal rate of return is between what two whole discount rates?
An institution plans to invest $1.5 million to support research on new methods of teaching. The project which has a lifetime of 15 years can save the cost of salary, student fees and other university fees worth $ 500,000 per year. Since the research activities are done at the same time as other research, the allocation for other research activities is reduced by $ 200,000 per year. The project requires an operating cost of $ 50,000 per year. At MARR of 6% per annum, determine (i) conventional B/C (ii) modified B/C ratio analysis for this project to assess the fairness of this financing program within 15 years.
Required information [The following information applies to the questions displayed below.] Cardinal Company is considering a five-year project that would require a $2,975,000 investment in equipment with a useful life of five years and no salvage value. The company's discount rate is 14%. The project would provide net operating income in each of five years as follows: Sales Variable expenses Contribution margin Fixed expenses: Advertising, salaries, and other fixed out- of-pocket costs Depreciation Total fixed expenses Net operating income $ 735,000 595,000 $ 2,735,000 1,000,000 1,735,000 1,330,000 $ 405,000 Click here to view Exhibit 148-1 and Exhibit 148-2. to determine the appropriate discount factor(s) using table. O Higher O Lower O Same 10. If the equipment had a salvage value of $300,000 at the end of five years, would you expect the project's payback period to be higher, lower, or the same?
Factor Company is planning to add a new product to its line. To manufacture this product, the company needs to buy a new machine at a $480,000 cost with an expected four-year life and a $20,000 salvage value. Additional annual information for this new product line follows. Required 1. Determine income and net cash flow for each year of this machine’s life.2. Compute this machine’s payback period, assuming that cash flows occur evenly throughout each year.3. Compute net present value for this machine using a discount rate of 7%.
Pharoah Manufacturing Co. is evaluating two projects. The company uses payback criteria of three years or less. Project A has a cost of $901,000, and project B's cost is $1,268,100. Cash flows from both projects are given in the following table. Year Project A $86,212 1 2 3 4 313,562 427,594 285,552 Project B $586,212 413,277 231,199 What are their discounted payback periods? (Round answers to 2 decimal places, e.g. 15.25. If discounted payback period exceeds life of the project, enter 0.00 for the answer.) Discounted payback period of project A Pharoah should choose Discounted payback period of project B Which will be accepted with a discount rate of 8 percent?
Lukow Products is investigating the purchase of a piece of automated equipment that will save $130,000 each year in direct labor and inventory carrying costs. This equipment costs $780,000 and is expected to have a 6-year useful life with no salvage value. The company's required rate of return is 10% on all equipment purchases. Management anticipates that this equipment will provide intangible benefits such as greater flexibility and higher-quality output that will result in additional future cash inflows. Click here to view Exhibit 7B-1 and Exhibit 7B-2, to determine the appropriate discount factor(s) using table. Required: 1. What is the net present value of the piece of equipment before considering its intangible benefits? Note: Enter negative amount with a minus sign. Round your final answer to the nearest whole dollar amount. 2. What minimum dollar value per year must be provided by the equipment's intangible benefits to justify the $780,000 investment? Note: Do not round…

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