New-Project Analysis The Campbell Company is considering adding a robotic paint sprayer to its production line. The sprayer's base price is $800,000, and it would cost another $20,000 to install it. The machine falls into the MACRS 3-year class, and would be sold after 3 years for $500,000. The MACRS rates for the first three years are 0.3333, 0.4445, and 0.1481. The machine would require an increase in net working capital (inventory) of $17,500. The sprayer would not change revenues, but it is expected to save the firm $393,000 per year in before-tax operating costs, mainly labor. Campbell's marginal tax rate is 25%. (Ignore the half-year convention for the straight-line method.) Cash outflows, if any, should be indicated by a minus sign. Do not round intermediate calculations. Round your answers to the nearest dollar. a. What is the Year-0 net cash flow? b. What are the net operating cash flows in Years 1, 2, and 3? Year 1:$ Year 2:$ Year 3:$ c. What is the additional Year-3 cash flow (i.e, the after-tax salvage and the return of working capital)? d. If the project's cost of capital is 12%, what is the NPV of the project? Should the machine be purchased? -Select- v

New-Project Analysis The Campbell Company is considering adding a robotic paint sprayer to its production line. The sprayer's base price is $800,000, and it would cost another $20,000 to install it. The machine falls into the MACRS 3-year class, and would be sold after 3 years for $500,000. The MACRS rates for the first three years are 0.3333, 0.4445, and 0.1481. The machine would require an increase in net working capital (inventory) of $17,500. The sprayer would not change revenues, but it is expected to save the firm $393,000 per year in before-tax operating costs, mainly labor. Campbell's marginal tax rate is 25%. (Ignore the half-year convention for the straight-line method.) Cash outflows, if any, should be indicated by a minus sign. Do not round intermediate calculations. Round your answers to the nearest dollar. a. What is the Year-0 net cash flow? b. What are the net operating cash flows in Years 1, 2, and 3? Year 1:$ Year 2:$ Year 3:$ c. What is the additional Year-3 cash flow (i.e, the after-tax salvage and the return of working capital)? d. If the project's cost of capital is 12%, what is the NPV of the project? Should the machine be purchased? -Select- v

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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The Campbell Company is considering adding a robotic paint sprayer to its production line. The sprayer's base price is $1,060,000, and it would cost another $20,500 to install it. The machine falls into the MACRS 3-year class, and it would be sold after 3 years for $488,000. The MACRS rates for the first three years are 0.3333, 0.4445, and 0.1481. The machine would require an increase in net working capital (inventory) of $18,000. The sprayer would not change revenues, but it is expected to save the firm $358,000 per year in before-tax operating costs, mainly labor. Campbell's marginal tax rate is 25%. (Ignore the half-year convention for the straight-line method.) Cash outflows, if any, should be indicated by a minus sign. Do not round intermediate calculations. Round your answers to the nearest dollar. What is the Year-0 net cash flow? $ What are the net operating cash flows in Years 1, 2, and 3? Year 1: $ Year 2: $ Year 3: $ What is the additional…
New-Project Analysis The president of MorChuck Enterprises has asked you to evaluate the proposed acquisition of a new chromatograph for the firm’s R&D department. The equipment’s basic price is $70,000, and it would cost another $15,000 to modify it for special use by your firm. The chromatograph, which falls into the MACRS 3-year class, would be sold after 3 years for $30,000. The MACRS rates for the first three years are 0.3333, 0.4445, and 0.1481. Use of the equipment would require an increase in net working capital (spare parts inventory) of $4,000. The machine would have no effect on revenues, but it is expected to save the firm $25,000 per year in before-tax operating costs, mainly labor. The firm’s marginal federal-plus-state tax rate is 25%. a. What is the Year-0 cash flow? b. What are the project recurring cash flows in Years 1, 2, and 3? c. What is the additional (non operating) cash flow in Year 3? d. If the project’s cost of capital is 10%, should the…
Amazon site BFI3 wants to test a new label scanner on their package sorter. The initial investment of the machine will be $2.5 million and the benefit due to cost savings will be $900,000 per year. Normal maintenance on the machine will cost $75,000 per year and they plan for major maintenance in year 7 of $500,000. At the end of the 10 year project life, they are able to sell the parts to another warehouse for $600,000. If the MARR is 11% what is the AEW of this project?
New-Project Analysis The Campbell Company is considering adding a robotic paint sprayer to its production line. The sprayer's base price is $850,000, and it would cost another $23,500 to install it. The machine falls into the MACRS 3-year class, and it would be sold after 3 years for $568,000. The MACRS rates for the first three years are 0.3333, 0.4445, and 0.1481. The machine would require an increase in networking capital (inventory) of $14,500. The sprayer would not change revenues, but it is expected to save the firm $368,000 per year in before-tax operating costs, mainly labor. Campbell's marginal tax rate is 25%. (Ignore the half-year convention for the straight-line method.) Cash outflows, if any, should be indicated by a minus sign. Do not round intermediate calculations. Round your answers to the nearest dollar. What is the Year-0 net cash flow? $ What are the net operating cash flows in Years 1, 2, and 3? Year 1: $ Year 2: $ Year 3: $ What is…
Project Evaluation Kolby's Korndogs is looking at a new sausage system with an installed cost of $655,000. This cost will be depreciated straightline to zero over the project's five-year life, at the end of which the sausage system can be scrapped for $85,000. The sausage system will save the firm $183,000 per year in pretax operating costs, and the system requires an initial investment in net working capital of $35,000. If the tax rate is 22 percent and the discount rate is 8 percent, what is the NPV of this project? Use excel to solve problem. Include formula view in excel.
Tanaka Machine Shop is considering a 4-year project to improve its production efficiency. Buying a new machine press for $395,000 is estimated to result in $151,000 in annual pretax cost savings. The press falls in the 5-year MACRS class, and it will have a salvage value at the end of the project of $51,000. The press also requires an initial investment in spare parts inventory of $22,000, along with an additional $3,200 in inventory for each succeeding year of the project. The shop’s tax rate is 22 percent and its discount rate is 9 percent. (MACRS schedule) Calculate the NPV of this project. (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.)
The Campbell Company is considering adding a robotic paint sprayer to its production line. The sprayer's base price is $1,130,000, and it would cost another $21,000 to install it. The machine falls into the MACRS 3-year class, and it would be sold after 3 years for $591,000. The MACRS rates for the first three years are 0.3333, 0.4445, and 0.1481. The machine would require an increase in net working capital (inventory) of $13,500. The sprayer would not change revenues, but it is expected to save the firm $316,000 per year in before-tax operating costs, mainly labor. Campbell's marginal tax rate is 25%. (Ignore the half-year convention for the straight-line method.) Cash outflows, if any, should be indicated by a minus sign. Do not round intermediate calculations. Round your answers to the nearest dollar. What are the net operating cash flows in Years 1, 2, and 3? Year 1: $ Year 2: $ Year 3: $ What is the additional Year-3 cash flow (i.e, the after-tax…
New-Project Analysis The president of your company, MorChuck Enterprises, has asked you to evaluate the proposed acquisition of a new chromatograph for the firm's R&D department. The equipment's basic price is $63,000, and it would cost another $19,500 to modify it for special use by your firm. The chromatograph, which falls into the MACRS 3-year class, would be sold after 3 years for $26,800. The MACRS rates for the first three years are 0.3333, 0.4445 and 0.1481. (Ignore the half-year convention for the straight-line method.) Use of the equipment would require an increase in net working capital (spare parts inventory) of $2,320. The machine would have no effect on revenues, but it is expected to save the firm $19,960 per year in before-tax operating costs, mainly labor. The firm's marginal federal-plus-state tax rate is 25%. Cash outflows and negative NPV value, if any, should be indicated by a minus sign. Do not round intermediate calculations. Round your answers to the nearest…
A manufacturer of automated optical inspection devices is deciding on a project to increase the productivity of the manufacturing processes. The estimated costs for the two feasible alternatives being compared are shown below. Use the internal rate of return (IRR) method to determine which alternative should be selected if the analysis period is 8 years and the company's MARR is 4% per year. Alternative M N Initial costs $30,000 $45,000 Net annual cash flow $4,500 $7,000 Life in years 8 8 (a) IRR of base alternative = (b) IRR of incremental cash flow = (c) Choose Alternative
New-Project Analysis The Campbell Company is considering adding a robotic paint sprayer to its production line. The sprayer's base price is $1,030,000, and it would cost another $18,500 to install it. The machine falls into the MACRS 3-year class, and it would be sold after 3 years for $537,000. The MACRS rates for the first three years are 0.3333, 0.4445, and 0.1481. The machine would require an increase in net working capital (inventory) of $20,000. The sprayer would not change revenues, but it is expected to save the firm $377,000 per year in before-tax operating costs, mainly labor. Campbell's marginal tax rate is 25%. (Ignore the half-year convention for the straight-line method.) Cash outflows, if any, should be indicated by a minus sign. Do not round intermediate calculations. Round your answers to the nearest dollar. What is the Year-0 net cash flow? $ What are the net operating cash flows in Years 1, 2, and 3? Year 1: $ Year 2: $ Year 3: $ What is…
The Campbell Company is considering adding a robotic paint sprayer to its production line. The sprayer’s base price is $920,000, and it would cost another $20,000 to install it. The machine falls into the MACRS 3-year class, and it would be sold after 3 years for $500,000. The MACRS rates for the first three years are 0.3333, 0.4445, and 0.1481. The machine would require an increase in net working capital (inventory) of $15,500. The sprayer would not change revenues, but it is expected to save the firm $304,000 per year in before-tax operating costs, mainly labor. Campbell’s marginal tax rate is 25%. a. What is the Year-0 cash flow? b. What are the cash flows in Years 1, 2, and 3? c. What is the additional Year-3 cash flow (i.e., the after-tax salvage and the return of working capital)? d. If the project’s cost of capital is 12%, what is the NPV?

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