Parker & Stone, Inc., is looking at setting up a new manufacturing plant in South Park toproduce garden tools. The company bought some land six years ago for $2.8 million inanticipation of using it as a warehouse and distribution site, but the company has sincedecided to rent these facilities from a competitor instead. If the land were sold today,the company would net $3.2 million. The company wants to build its new manufacturingplant on this land; the plant will cost $14.3 million to build, and the site requires$825,000 worth of grading before it is suitable for construction. What is the proper cashflow amount to use as the initial investment in fixed assets when evaluating this project?Input area:Purchase priceAppraised valueCost to buildGrading costs(Use cells A6 to B9 from the given information to complete this question. Enter a "0" for any costthat should not be included.)Output area:Purchase priceAppraised valueCost to build$2,800,000$3,200,000$14,300,000$825,000Grading costsTotal initial cost

Proper cash flow for the Initial investment or the Initial cost= Opportunity cost of the land + Cost…

Answered: Parker & Stone, Inc., is looking at…

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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Suppose you have been hired as a financial consultant to Defense Electronics, Inc. (DEI), a large, publicly traded firm that is the market share leader in radar detection systems (RDSs). The company is looking at setting up a manufacturing plant overseas to produce a new line of RDSs. This will be a five-year project. The company bought some land three years ago for $7.3 million in anticipation of using it as a toxic dump site for waste chemicals, but it built a piping system to safely discard the chemicals instead. If the land were sold today, the net proceeds would be $7.79 million after taxes. In five years, the land will be worth $8.09 million after taxes. The company wants to build its new manufacturing plant on this land; the plant will cost $13.76 million to build. The following market data on DEI’s securities are current: Debt: 93,800 7.2 percent coupon bonds outstanding, 26 years to maturity, selling for 93.1 percent of par; the bonds have a $1,000 par value each…
Parker & Stone, Incorporated, is looking at setting up a new manufacturing plant in South Park to produce garden tools. The company bought some land six years ago for $7.4 million in anticipation of using it as a warehouse and distribution site, but the company has since decided to rent facilities elsewhere. If the land were sold today, the company would net $10.2 million. The company now wants to build its new manufacturing plant on this land; the plant will cost $21.4 million to build, and the site requires $890,000 worth of grading before it is suitable for construction. What is the proper cash flow amount to use as the initial investment in fixed assets when evaluating this project?
Parker & Stone, Incorporated, is looking at setting up a new manufacturing plant in South Park to produce garden tools. The company bought some land six years ago for $7.5 million in anticipation of using it as a warehouse and distribution site, but the company has since decided to rent facilities elsewhere. If the land were sold today, the company would net $10.3 million. The company now wants to build its new manufacturing plant on this land; the plant will cost $21.5 million to build, and the site requires $900,000 worth of grading before it is suitable for construction. What is the proper cash flow amount to use as the initial investment in fixed assets when evaluating this project? Note: Do not round intermediate calculations and enter your answer in dollars, not millions, rounded to the nearest whole number, e.g., 1,234,567. Cash flow
Citco Company is considering investing up to $500,000 in a sustainability-enhancing project. Its managers have narrowed their choices to three potential projects. Project A would redesign the production process to recycle raw materials waste back into the production cycle, saving on direct materials costs and reducing the amount of waste sent to the landfill. Project B would remodel an office building, utilizing solar panels and natural materials to create a more energy-efficient and healthy work environment. Project C would build a new training center in an underserved community, providing jobs and economic security for the local community. Required:1. Assuming the cost of capital is 12%, complete the table below by computing the payback period, NPV, profitability index, and internal rate of return. (Future Value of $1, Present Value of $1, Future Value Annuity of $1, Present Value Annuity of $1.) (Use appropriate factor(s) from the tables provided. Do not round intermediate…
XYZ-ABC Partners, LLC, is looking at setting up a new plant in Florida to produce lawn mowers. The company bought some land 1 year ago for $4 million in anticipation of using it as a warehouse and distribution site, but the company has since decided to rent these facilities from a competitor instead. If the land were sold today, the company would net $6 million. The company wants to build its new plant on this land; the plant will cost $12 million to build, and the site requires $2 million worth of grading before it is suitable for construction. What is the proper cash flow amount to use as the initial investment in fixed assets when evaluating this project?
Kenny, Inc., is looking at setting up a new manufacturing plant in South Park. The company bought some land six years ago for $8.7 million in anticipation of using it as a warehouse and distribution site, but the company has since decided to rent facilities elsewhere. The land would net $11.5 million if it were sold today. The company now wants to build its new manufacturing plant on this land; the plant will cost $22.7 million to build, and the site requires $1,020,000 worth of grading before it is suitable for construction. What is the proper cash flow amount to use as the initial investment in fixed assets when evaluating this project? Cash flow: $_______
Parker & Stone, Incorporated, is looking at setting up a new manufacturing plant in South Park to produce garden tools. The company bought some land six years ago for $8.2 million in anticipation of using it as a warehouse and distribution site, but the company has since decided to rent facilities elsewhere. If the land were sold today, the company would net $11 million. The company now wants to build its new manufacturing plant on this land; the plant will cost $22.2 million to build, and the site requires $970,000 worth of grading before it is suitable for construction. What is the proper cash flow amount to use as the initial investment in fixed assets when evaluating this project? Note: Do not round intermediate calculations and enter your answer in dollars, not millions, rounded to the nearest whole number, e.g., 1,234,567. Cash flow
You have been hired as a consultant for Pristine Urban-Tech Zither, Incorporated (PUTZ), manufacturers of fine zithers. The market for zithers is growing quickly. The company bought some land three years ago for $1.39 million in anticipation of using it as a toxic waste dump site but has recently hired another company to handle all toxic materials. Based on a recent appraisal, the company believes it could sell the land for $1,490,000 on an aftertax basis. At the end of the project, the land could be sold for $1,590,000 on an aftertax basis. The company also hired a marketing firm to analyze the zither market, at a cost of $124,000. An excerpt of the marketing report is as follows: The zither industry will have a rapid expansion in the next four years. With the brand name recognition that PUTZ brings to bear, we feel that the company will be able to sell 3,700, 4,600, 5,200, and 4,100 units each year for the next four years, respectively. Again, capitalizing on the name recognition of…
Parker & Stone, Incorporated, is looking at setting up a new manufacturing plant in South Park to produce garden tools. The company bought some land six years ago for $7.1 million in anticipation of using it as a warehouse and distribution site, but the company has since decided to rent facilities elsewhere. If the land were sold today, the company would net $9.9 million. The company now wants to build its new manufacturing plant on this land; the plant will cost $21.1 million to build, and the site requires $860,000 worth of grading before it is suitable for construction. What is the proper cash flow amount to use as the initial investment in fixed assets when evaluating this project? Note: Do not round intermediate calculations and enter your answer in dollars, not millions, rounded to the nearest whole number, e.g., 1,234,567. Answer is complete but not entirely correct. Cash flow $ 19,160,000 ×
The Depot Restaurant has experienced growing sales, and management is looking to expand. They currently own a lot on Main Street, a good location for a restaurant, as indicated by a marketing survey. The survey cost was $20,000. The lot was purchased five years ago at a cost of $300,000. Today, the property could be sold for $560,000 because of the increase in real estate prices. The land will have to be cleared before a new restaurant can be built at a cost of $30,000. The company can then build a new restaurant at an estimated cost of $600,000. Finally, the management has recently allocated $100,000 in new executive salaries to the new store. What is the cost of this expansion project?
Rogers Inc. is considering expanding into the sports drink business with a new product. Assume that you were recently hired as assistant to the director of capital budgeting and you must evaluate the new project. The sports drink would be produced in an unused building adjacent to Rogers’ Jacksonville plant; Rogers owns the building, which is fully depreciated. The required equipment would cost $1,200,000, plus an additional $300,000 for shipping and installation. In addition, inventories would rise by $300,000, while accounts payable would increase by $100,000. All of these costs would be incurred today. The equipment will be depreciated by the straight-line method over the life of the project. The project is expected to operate for 10 years, at which time it will be terminated. The cash inflows are assumed to begin 1 year after the project is undertaken and to continue until the end of the tenth year. At the end of the project’s life, the equipment is expected to have a…

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