Optomics Ltd. is investigating an expansion of its services. After consultation with industry, the following two projects are available for investment: Project A Project B CAPEX / Initial Outlay $10,000,000 $21,000,000 Project life Revenue (per year) 8 years $6,000,000 $2,000,000 $1,000,000 7 years $9,000,000 $1,500,000 $2,000,000 Variable costs Operating expense Investment in Net Working Capital (Year 0) $1,500,000 $2,500,000 The company's tax rate is 30% and uses a straight-line depreciation method. There will be no 'salvage' value associated with these projects at the end of their project life. Official Liquidators has a required rate of return of 10% per annum. a) Determine the Free Cash Flows, for each year, to the firm for both projects. b) Identify which project you recommend the company invest in. c) What is meant by incremental cash flows from a capital budgeting perspective? Why should only incremental cash flows be included in the project valuation process?

Optomics Ltd. is investigating an expansion of its services. After consultation with industry, the following two projects are available for investment: Project A Project B CAPEX / Initial Outlay $10,000,000 $21,000,000 Project life Revenue (per year) 8 years $6,000,000 $2,000,000 $1,000,000 7 years $9,000,000 $1,500,000 $2,000,000 Variable costs Operating expense Investment in Net Working Capital (Year 0) $1,500,000 $2,500,000 The company's tax rate is 30% and uses a straight-line depreciation method. There will be no 'salvage' value associated with these projects at the end of their project life. Official Liquidators has a required rate of return of 10% per annum. a) Determine the Free Cash Flows, for each year, to the firm for both projects. b) Identify which project you recommend the company invest in. c) What is meant by incremental cash flows from a capital budgeting perspective? Why should only incremental cash flows be included in the project valuation process?

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 company is intending to invest in a capital budgeting project to manufacture a medical testing device and has projected the following sales: Year 1 Year 2 Year 3                    Year 4 Year 5 50,000                   66,400                   81,200                   68,500                   54,500 The installed cost of the new assets will be $18,500,000 which will be depreciated using the 7-year MACRS schedule. The assets will have a salvage value of $3,700,000. Initial NWC requirements are $1,500,000 and additional working capital needs are estimated to be 15% of the projected sales increases for the following year. Total fixed costs are $2,000,000 per year. The medical device has a selling price of $300 per unit and variable production costs are $175. The firm has a marginal tax rate of 35% and a required rate of return of 18%. Analyze this project and give your recommendation as to whether they should invest in it or…
ZLX is evaluating an investment and has generated the following: Initial investment at time t=0 is $2,000,000 Life of project is 8 years Initial investment depreciated to $0 via straight-line over entire life NWC investment required = $0.00 Expected market salvage value of investment assets = $0.00 Starting 1-year from today, and remaining constant over project life: Incremental sales as a result of investment = $1,600,000 / year Incremental expenses as a result of investment = $1,100,000 / year firm' tax rate = 28% What is the IRR of this investment? Enter rate in decimal form, rounded to fourth digit, as in "0.1234"
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2
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 $ 2,735,000 1,000,000 1,735,000 Variable expenses Contribution margin Fixed expenses: Advertising, salaries, and other fixed out- of-pocket costs Depreciation Total fixed expenses $ 735,000 595,000 1,330,000 Net operating income $ 405,000 Click here to view Exhibit 14B-1 and Exhibit 14B-2, to determine the appropriate discount factor(s) using table. 2. What are the project's annual net cash inflows? Annual net cash inflow
Please answer ASAP if you can please. Thank you! Please Please write expression or formula used Set up expression initially with functional notation (e.g.,(P/F,I,n))

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