Light Motors is taking a look at a new product line that will take a few years to create. New lab equipment would cost PhP 10 million initial investment, and salaries and other expenses will total PhP 15 million each year for the next four years. The new product revenues begin in year 6 and average PhP 15 million per year for the rest of the study period. Is this a good venture for Light Motors? use a 12% MARR and a 20-year time period? Use the following method to support your recommendation (Future Worth and ERR - use € = 12%) ANSWERS: Future Worth is PhP Blank 1 ERR (1i) is Blank 2 % The project is a Blank 3 proposal. (good or bad) NOTE: Do not use any unit of measure and comma. Two decimal places in your final answer. Blank 1 Add your answer

Light Motors is taking a look at a new product line that will take a few years to create. New lab equipment would cost PhP 10 million initial investment, and salaries and other expenses will total PhP 15 million each year for the next four years. The new product revenues begin in year 6 and average PhP 15 million per year for the rest of the study period. Is this a good venture for Light Motors? use a 12% MARR and a 20-year time period? Use the following method to support your recommendation (Future Worth and ERR - use € = 12%) ANSWERS: Future Worth is PhP Blank 1 ERR (1i) is Blank 2 % The project is a Blank 3 proposal. (good or bad) NOTE: Do not use any unit of measure and comma. Two decimal places in your final answer. Blank 1 Add your answer

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

See similar textbooks

Similar questions

7. Calculating Cost of Debt For the firm in Problem 6, suppose the book value of the debt issue is $135 million. In addition, the company has a second debt issue, a zero coupon bond with 12 years left to maturity; the book value of this issue is $65 million, and it sells for 64.3 percent of par. LO 2 What is the total book value of debt? The total market value? What is the aftertax cost of debt now?
Fantastic Footwear can invest in one of two different automated clicker cutters. The first, A, has a $130,000 first cost. A similar one with many extra features, B has a $471,000 first cost. A will save $50,000 per year over the cutter currently in use. B will save $160,000 per year. Each clicker cutter will last five years. If the MARR is 8 percent, which alternative is better? Use an IRR comparison. For the increment from the do-nothing alternative to cutter A, the IRR is should be chosen. (Type integers or decimals rounded to one decimal place as needed.) percent. For the increment from cutter A to cutter B, the IRR is percent. Therefore,
You are considering opening a new plant. The plant will cost $98.2 million upfront. After that, it is expected to produce profits of $30.2 million at the end of every year. The cash flows are expected to last forever. Calculate the NPV of this investment opportunity if your cost of capital is 6.6%. Should you make the investment? Calculate the IRR and use it to determine the maximum deviation allowable in the cost of capital estimate to leave the decision unchanged. Calculate the NPV of this investment opportunity if your cost of capital is 6.6%. The NPV of this investment opportunity is $ million. (Round to one decimal place.)
Consider a project with an initial investment (today, t = 0) of $225,000. This project will generate cash flows of $68,750 per year for the next 6 years. The company will pay $50,000 to another for clean-up and disposal in Year 6. What is the Profitability Index (PI) of the project if shareholders demand 8.25% return? Answer in whole numbers, rounded to three decimal places.
You are evaluating a project that will cost $543,000, but is expected to produce cash flows of $127,000 per year for 10 years, with the first cash flow in one year. Your cost of capital is 10.9% and your company's preferred payback period is three years or less. a. What is the payback period of this project? b. Should you take the project if you want to increase the value of the company?
A project whose machinery and installation cost $15,000, promises a net stream of savings of $3,000 per year and has an expected life of 6 years. The companies required rate of return is 5%. What is the NPV of the project. What is the internal rate of return?
FastTrack Bikes, Inc. is thinking of developing a new composite road bike. Development will take six years and the cost is $189,000 per year. Once in production, the bike is expected to make $283,500 per year for 10 years. Assume the cost of capital is 10%. a. Calculate the NPV of this investment opportunity, assuming all cash flows occur at the end of each year. Should the company make the investment? b. By how much must the cost of capital estimate deviate to change the decision? (Hint: Use Excel to calculate the IRR.) c. What is the NPV of the investment if the cost of capital is 15%? Note: Assume that all cash flows occur at the end of the appropriate year and that the inflows do not start until year 7.
es United Pigpen is considering a proposal to manufacture high-protein hog feed. The project would make use of an existing warehouse, which is currently rented out to a neighboring firm. The next year's rental charge on the warehouse is $150,000, and thereafter, the rent is expected to grow in line with inflation at 4% a year. In addition to using the warehouse, the proposal envisages an investment in plant and equipment of $1.50 million. This could be depreciated for tax purposes straight-line over 10 years. However, Pigpen expects to terminate the project at the end of 8 years and to resell the plant and equipment in year 8 for $500,000. Finally, the project requires an immediate investment in working capital of $400,000. Thereafter, working capital is forecasted to be 10% of sales in each of years 1 through 7. Year 1 sales of hog feed are expected to be $5.20 million, and thereafter, sales are forecasted to grow by 5% a year, slightly faster than the inflation rate. Manufacturing…
You are evaluating an investment project costing $42,000 initially. The project will provide $3,000 in after - tax cash flows in the first year, and $7,000 each year thereafter for 10 years. The maximum payback period for your company is 6 years. What is the payback period for this project?
Cheese & Cake Factory is looking at a project with the following forecasted sales: first-yearsales quantity of 35,000 with an annual growth rate of 5% over the next 5 years. The sales priceper unit is $40 and will grow at 3% per year. The production costs are expected to be 50% ofthe current year's sales price. The manufacturing equipment to aid this project will have a totalcost (including installation) of $1,000,000. It will be depreciated using MACRS and has aseven-year MACRS life classification. Fixed costs are $300,000 per year.The change in net operating working capital is $10,000 and will be recovered at the end of year5. Cheese & Cake Factory has a tax rate of 40%. At the end of year 5, the manufacturingequipment can be sold for $150,000 and the cost of capital for this project is 10%. What are the operating cash flow for years one and two?
Cutting Edge Sensors Ltd. has taken $2.5M worth of investor stock to start a 3 year project that is estimated to earn $5M by the end of the project ($2M at end of year 2, and $3M at the end of year 3). The yearly costs involved are $500,000 for the length of the project.Investors had the opportunity to invest in another project expected to earn 10% per year. 1) What is the ROI? 2) What is the NPV?
An investment of P10,000 can be made in project that will produce a uniform annual revenue of P6310 for five years and then have a salvage value of P2000. Annual expenses will P3000 each year. The company is willing to accept any project that will earn 10% per year or more on all investment capital. Show whether this is desirable investment. Solve the Problem using annual cost method.

SEE MORE QUESTIONS

Recommended textbooks for you

Essentials Of Investments

Finance

ISBN:

9781260013924

Author:

Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Publisher:

Mcgraw-hill Education,

FUNDAMENTALS OF CORPORATE FINANCE

Finance

ISBN:

9781260013962

Author:

BREALEY

Publisher:

RENT MCG

Financial Management: Theory & Practice

Finance

ISBN:

9781337909730

Author:

Brigham

Publisher:

Cengage

Foundations Of Finance

Finance

ISBN:

9780134897264

Author:

KEOWN, Arthur J., Martin, John D., PETTY, J. William

Publisher:

Pearson,

Fundamentals of Financial Management (MindTap Cou…

Finance

ISBN:

9781337395250

Author:

Eugene F. Brigham, Joel F. Houston

Publisher:

Cengage Learning

Corporate Finance (The Mcgraw-hill/Irwin Series i…

Finance

ISBN:

9780077861759

Author:

Stephen A. Ross Franco Modigliani Professor of Financial Economics Professor, Randolph W Westerfield Robert R. Dockson Deans Chair in Bus. Admin., Jeffrey Jaffe, Bradford D Jordan Professor

Publisher:

McGraw-Hill Education

Essentials Of Investments

Finance

ISBN:

9781260013924

Author:

Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Publisher:

Mcgraw-hill Education,

FUNDAMENTALS OF CORPORATE FINANCE

Finance

ISBN:

9781260013962

Author:

BREALEY

Publisher:

RENT MCG

Financial Management: Theory & Practice

Finance

ISBN:

9781337909730

Author:

Brigham

Publisher:

Cengage

Foundations Of Finance

Finance

ISBN:

9780134897264

Author:

KEOWN, Arthur J., Martin, John D., PETTY, J. William

Publisher:

Pearson,

Fundamentals of Financial Management (MindTap Cou…

Finance

ISBN:

9781337395250

Author:

Eugene F. Brigham, Joel F. Houston

Publisher:

Cengage Learning

Corporate Finance (The Mcgraw-hill/Irwin Series i…

Finance

ISBN:

9780077861759

Author:

Stephen A. Ross Franco Modigliani Professor of Financial Economics Professor, Randolph W Westerfield Robert R. Dockson Deans Chair in Bus. Admin., Jeffrey Jaffe, Bradford D Jordan Professor

Publisher:

McGraw-Hill Education

SEE MORE TEXTBOOKS