Olinick Corporation is considering a project that would require an investment of $354,000 and would last for 8 years. The incremental annual revenuesand expenses generated by the project during those 8 years would be as follows (ignore income taxes.):SalesVariable expensesContribution marginFixed expenses:SalariesRentsDepreciationTotal fixed expensesNet operating incomeMultiple ChoiceThe scrap value of the project's assets at the end of the project would be $30,000. The cash inflows occur evenly throughout the year. The paybackperiod of the project is closest to: (Round your answer to 1 decimal place.)4.8 years$ 210,00022,000188,0007.5 years40,00053,00048,000141,000$ 47,000

Payback period is the time required to recover the initial investment of a project. It is calculated…

Answered: Olinick Corporation is considering a…

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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A project has annual NPV break-even level of sales of $3,000,000. The annual net cash flows can be calculated as (0.16 x sales- $392,000). The project has a 5-year life and the company's cost of capital is 8.70%. Ignoring the impact of depreciation and taxes, what is the most that should be invested in this project today? a. $229,980 b. $1,320,000 C. $440,000 d. $344,970 e. $880,000
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A 5-year project is expected to generate annual sales of 8,800 units at a price of $75 per unit and a variable cost of $46 per unit. The equipment necessary for the project will cost $309,000 and will be depreciated on a straight-line basis over the life of the project. Fixed costs are $185,000 per year and the tax rate is 21 percent. How sensitive is the operating cash flow to a $1 change in the per unit sales price? Multiple Choice $3,254 $3,629 $6,952 $4,752 $4,003
Hughes Corporation is considering a project that would require an investment of $343,000 and would last for 8 years. The incremental annual revenues and expenses generated by the project during those 8 years would be as follows (Ignore income taxes.): Sales Variable expenses Contribution margin Fixed expenses: Salaries Rents Depreciation Total fixed expenses Net operating income $ 227,000 52,000 175,000 O 3.0 years O 5.1 years O 3.2 years O 4.8 years 27,000 41,000 40,000 108,000 $ 67,000 The scrap value of the project's assets at the end of the project would be $23,000. The cash inflows occur evenly throughout the year. The payback period of the project is closest to:
You are analyzing a project and have developed the following estimates. The depreciation is $72,000 a year and the tax rate is 35 percent. What is the operating cash flow? Unit Sales 2,900 $220 Price per Unit Variable Costs per Unit $160 Fixed Costs $28,500 a. $119,775 b. $138,275 c. $153,075 d. $164,775
Bennett Company has a potential new project that is expected to generate annual revenues of $261,200, with variable costs of $143,600, and fixed costs of $61,000. To finance the new project, the company will need to issue new debt that will have an annual interest expense of $24,000. The annual depreciation is $25,000 and the tax rate is 21 percent. What is the annual operating cash flow? Multiple Choice $42,600 $127,600 $81,600 $178,616 $49,964
2. A project costs $20,000, will be depreciated straight-line to zero over its 3 year life, and will required a net working capital investment of %5,000 up-front. The project generates OCF of $13,000. The fixed assets will be sold for $2,000 at the end of the project. If the firm has a tax rate of 34% and a required return of 12%, what is the project's NPV?
Bennett Company has a potential new project that is expected to generate annual revenues of $263,000, with variable costs of $144, 400, and fixed costs of $61,600. To finance the new project, the company will need to issue new debt that will have an annual interest expense of $25,000. The annual depreciation is $25,400 and the tax rate is 35 percent. What is the annual operating cash flow? Multiple Choice $127,490 $82,400 $180,212 $45,940 $40,890
The financial staff of Cairn Communications has identified the following information for the first year of the roll-out of its new proposed service: Projected sales $22 million Operating costs (not including depreciation) $11 million Depreciation $5 million Interest expense $3 million The company faces a 25% tax rate. What is the project's operating cash flow for the first year (t = 1)? Enter your answer in dollars. For example, an answer of $1.2 million should be entered as $1,200,000. Round your answer to the nearest dollar. $
The financial staff of Cairn Communications has identified the following information for the first year of the roll-out of its new proposed service: Projected sales $22 million Operating costs (not including depreciation) $9 million Depreciation $5 million Interest expense $3 million The company faces a 25% tax rate. What is the project's operating cash flow for the first year (t = 1)? Enter your answer in dollars. For example, an answer of $1.2 million should be entered as $1,200,000. Round your answer to the nearest dollar.
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16. A 6-year project is expected to generate annual sales of 8,900 units at a price of $76 per unit and a variable cost of $47 per unit. The equipment necessary for the project will cost $317,000 and will be depreciated on a straight-line basis over the life of the project. Fixed costs are $190,000 per year and the tax rate is 25 percent. How sensitive is the operating cash flow to a $1 change in the per unit sales price? $4,609 $6,007 $4,142 $5,075 $6,675

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