Nick's Novelties, Incorporated, is considering the purchase of new electronic games to place in its amusement houses. The games would cost a total of $425,000, have a fifteen-year useful life, and have a total salvage value of $42,500. The company estimates that annual revenues and expenses associated with the games would be as follows: Revenues Less operating expenses: Insurance $220,000 Commissions to amusement houses $ 70,000 25,000 25,500 Maintenance 40,000 Net operating income 160,500 $ 59,500 Depreciation equired: a. Compute the payback period associated with the new electronic games. . Assume that Nick's Novelties, Incorporated, will not purchase new games unless they provide a payback period of five years ess. Would the company purchase the new games?

Nick's Novelties, Incorporated, is considering the purchase of new electronic games to place in its amusement houses. The games would cost a total of $425,000, have a fifteen-year useful life, and have a total salvage value of $42,500. The company estimates that annual revenues and expenses associated with the games would be as follows: Revenues Less operating expenses: Insurance $220,000 Commissions to amusement houses $ 70,000 25,000 25,500 Maintenance 40,000 Net operating income 160,500 $ 59,500 Depreciation equired: a. Compute the payback period associated with the new electronic games. . Assume that Nick's Novelties, Incorporated, will not purchase new games unless they provide a payback period of five years ess. Would the company purchase the new games?

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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KADS, Inc. has spent $400,000 on research to develop a new computer game. The firm is planning to spend $200,000 on a machine to produce the new game. Shipping and installation costs of the machine will be capitalized and depreciated; they total $50,000. The machine has an expected life of three years, a $75,000 estimated resale value, and falls under the MACRS seven-year class life. Revenue from the new game is expected to be $600,000 per year, with costs of $250,000 per year. The firm has a tax rate of 21 percent, an opportunity cost of capital of 15 percent, and it expects net working capital to increase by $100,000 at the beginning of the project. What will the cash flows for this project be? (Negative amounts should be indicated by a minus sign. Round your answers to 2 decimal places.) Need Cash Flows for 3 years
KADS, Inc., has spent $400,000 on research to develop a new computer game. The firm is planning to spend $200,000 on a machine to produce the new game. Shipping and installation costs of the machine will be capitalized and depreciated; they total $50,000. The machine has an expected life of three years, a $75,000 estimated resale value, and falls under the MACRS 7-year class life. Revenue from the new game is expected to be $600,000 per year, with costs of $250,000 per year. The firm has a tax rate of 21 percent, an opportunity cost of capital of 15 percent, and it expects net working capital to increase by $100,000 at the beginning of the project. What will the cash flows for this project be? Years 0-4
Finance KADS, Inc. has spent $440,000 on research to develop a new computer game. The firm is planning to spend $240,000 on a machine to produce the new game. Shipping and installation costs of the machine will be capitalized and depreciated; they total $54,000. The machine has an expected life of three years, a $79,000 estimated resale value, and falls under the MACRS seven-year class life. Revenue from the new game is expected to be $640,000 per year, with costs of
Salsa Co. is contemplating the replacement of an old machine with a new one. The following information has been gathered: Old Machine New Machine Price $300,000 $600,000 Accumulated Depreciation 89,300 Remaining useful life 10 years Useful life 10 years Annual operating costs $240,000 $180,600 If the old machine is replaced, it can be sold for $24,000. How much is the sunk cost?
Pique Corporation plans to purchase a new machine for $300,000. Management estimates that with the machine cash flows from sales will increase by $160,000 each year for the next 5 years. Expenses to generate the additional sales include direct materials, direct labor, and factory overhead (excluding depreciation) totaling $70,000 per year. The firm uses straight-line depreciation with no terminal disposal value for all depreciable assets. The new machine has an expected salvage value of zero at the end of the project. Pique's combined income tax rate is 20%. Management requires a minimum after-tax rate of return of 8% on all investments.a. Calculate the Net Present Value (NPV) for this project.
[The following information applies to the questions displayed below.] Nick's Novelties, Incorporated, is considering the purchase of new electronic games to place in its amusement houses. The games would cost a total of $310,000, have a fifteen-year useful life, and have a total salvage value of $31,000. The company estimates that annual revenues and expenses associated with the games would be as follows: Revenues Less operating expenses: Commissions to amusement houses Insurance Depreciation Maintenance Net operating income Exercise 12-8 Part 2 (Algo) Complete this question by entering your answers in the tabs below. Req 2A $ 90,000 58,000 18,600 70,000 2a. Compute the simple rate of return promised by the games. 2b. If the company requires a simple rate of return of at least 13%, will the games be purchased? Req 2B
B2B Company is considering the purchase of equipment that would allow the company to add a new product to its line. The equipment costs $240,000 and has a 12-year life and no salvage value. The expected annual income for each year from this equipment follows. Sales of new product $ 150,000 Expenses Materials, labor, and overhead (except depreciation) 80,000 Depreciation—Equipment 20,000 Selling, general, and administrative expenses 15,000 Income $ 35,000 (a) Compute the annual net cash flow.(b) Compute the payback period.(c) Compute the accounting rate of return for this equipment.
Stranger Things Corporation is planning to add a new product to its line. To package this product, the company needs to buy a new machine at a cost of $518,000 cost with an expected four-year life and $15,000 salvage value. Additional annual information for this new product line follows: Sales of new product Cost of Goods Sold (does not include depreciation) Selling, general, and administrative expenses (does not include depreciation) Required: (1) Determine income and net cash flow for each year of this machine's life. $ 1,750,000 1,248,000 (2) Compute this machine's payback period, assuming that cash flows occur evenly throughout each year. 315,000 (3) Compute net present value for this machine using a discount rate of 5%. Use the Present Value Tables below.
KADS, Inc., has spent $400,000 on research to develop a new computer game. The firm is planning to spend $200,000 on a machine to produce the new game. Shipping and installation costs of the machine will be capitalized and depreciated using bonus depreciation; they total $50,000. The machine has an expected life of three years and a $75,000 estimated resale value. Revenue from the new game is expected to be $600,000 per year, with costs of $250,000 per year. The firm has a tax rate of 21 percent, an opportunity cost of capital of 15 percent, and it expects net working capital to increase by $100,000 at the beginning of the project. What will the cash flows for this project be?
Required information [The following information applies to the questions displayed below.] Nick's Novelties, Inc., is considering the purchase of new electronic games to place in its amusement houses. The games would cost a total of $300,000, have a fifteen-year useful life, and have a total salvage value of $30,000. The company estimates that annual revenues and expenses associated with the games would be as follows: Revenues $200, 000 Less operating expenses: Commissions to amusement houses $60,000 30,000 18,000 35,000 Insurance Depreciation Maintenance 143, 000 $ 57,000 Net operating income Required: 1a. Compute the payback period associated with the new electronic games. 1b. Assume that Nick's Novelties, Inc., will not purchase new games unless they provide a payback period of five years or less. Would the company purchase the new games?
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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