ou are working on a bid to build 4 city parks a year for the next three years. This project requires the purchase of $1,000,000 of equipment that will be depreciated using straight-line depreciation to a zero book value over the three-year project life. The equipment can be sold at the end of the project for $12500. You will also need to invest $18,000 in net working capital for the duration of the project. The fixed costs will be $37,000 a year and the variable costs will be $148,000 per park. Your required rate of return is 14 percent and your tax rate is 21 percent. Make sure your work includes the answers to the following questions. What is the depreciation every year? What is the after-tax salvage value of the equipment at the end of the project? What is the change in net working capital at the beginning and the end of the project?
ou are working on a bid to build 4 city parks a year for the next three years. This project requires the purchase of $1,000,000 of equipment that will be depreciated using straight-line depreciation to a zero book value over the three-year project life. The equipment can be sold at the end of the project for $12500. You will also need to invest $18,000 in net working capital for the duration of the project. The fixed costs will be $37,000 a year and the variable costs will be $148,000 per park. Your required rate of return is 14 percent and your tax rate is 21 percent. Make sure your work includes the answers to the following questions. What is the depreciation every year? What is the after-tax salvage value of the equipment at the end of the project? What is the change in net working capital at the beginning and the end of the project?
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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You are working on a bid to build 4 city parks a year for the next three years. This project requires the purchase of $1,000,000 of equipment that will be
Make sure your work includes the answers to the following questions.
- What is the depreciation every year?
- What is the after-tax salvage value of the equipment at the end of the project?
- What is the change in net working capital at the beginning and the end of the project?
- What is the cash flow from assets (CFFA) at each time point?
- What is the estimated operating cash flow (OCF) the project must generate to make
NPV equal to 0? - What is the minimum bid price?
- Assume you submit the minimum price at which you are willing to build the parks and your bid is accepted. Fill in the blanks below.
The NPV of the project is ______________.
The
The P.I. of the project is _______________.
You financially break even by producing __________ city parks.
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