Plant Company is contemplating the purchase of a new plece of equipment for $40,000. Plant is in the 40%Income tax bracket. Predicted annual after-tax cash inflows from this Investment are $17,000, $13,000, $8,000,$4,000 and $6,000 for years 1 through 5, respectively. The firm uses straight-line depreciation with no residualvalue at the end of five years.Assume that the hurdle rate for accepting new capital investment projects for the company is 4%, after-tax(Note: PV $1 factors for 4% are as follows: for year 1-0.962, for year 2=0.925, for year 3-0.889. for year 4 -0.855, for year 5-0.822; the PV annulty factor for 4%, 5 years-4.452) At an after-tax discount rate of 4%, theestimated net present value (NPV) of the proposed investment is (rounded to the nearest hundred dollars)Multiple ChoiceO($13,000)($10,300)($7,300)($4,000)$3,800

The NPV of the project is the initial investment subtracted from the present value of all the future…

Answered: Plant Company is contemplating the…

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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Wilson, Inc., is considering a new four-year expansion project that requires an initial fixed asset investment of $1,875,000. The fixed asset will be depreciated straight-line to zero over its four-year tax life, after which time it will be worthless. The project is estimated to generate $2,040,000 in annual sales, with costs of $1,235,000. If the tax rate is 35 %, and the required return on the project is 12%, what is the project's NPV?
DMV, Inc., is considering a new three-year expansion project that requires an initial fixed asset investment of $1.2 million. The fixed asset will be depreciated straight-line to zero over its three-year tax life, after which it will be worthless. The project is estimated to generate $1,40,000 in annual sales, with costs of $500,000. The tax rate is 37 percent and the required return is 12 percent. What is the project's NPV?
A large profitable corporation is considering a capital investment of $50,000. The equipment has a projected salvage value of $0 at the end of the two-year project period. The annual gross income each of the next two years is projected to be $44,000 and expenses are projected to be $14,000 annually. The depreciation amount will be $25,000 annually. This profitable corporation has an incremental income tax rate of 25% and the MARR is 10%. The projections are based on current economic conditions without consideration of price or cost escalations. Nevertheless, a general inflation rate of 4% is expected, and it is anticipated that all future costs and revenues will react to this inflation. Determine the after-tax CF (in actual dollars) for Year 1 (only).
Down Under Boomerang, Inc., is considering a new three-year expansion project that requires an initial fixed asset investment of $2.64 million. The fixed asset will be depreciated straight-line to zero over its three-year tax life, after which time it will be worthless. The project is estimated to generate $2,060,000 in annual sales, with costs of $755,000. The tax rate is 22 percent and the required return is 13 percent. What is the project's NPV? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.) NPV $ 125,767.04
Land Development Corporation is considering the purchase of a bulldozer. The bulldozer will cost $100,000 and will have an estimated salvage value of $30,000 at the end of six years. The asset will generate annual before-tax revenues of $80,000 over the next six years. The asset is classified as a five-year MACRS property. The marginal tax rate is 40%, and the firm's market interest rate is known to be 18%. All dollar figures represent constant dollars at time zero and are responsive to the general inflation rate J.(a) With 1=6% compute the after-tax cash flows in actual dollars.(b) Determine the real rate of return of this project on an after-tax basis.(c) Suppose that the initial cost of the project will be financed through a local bank at an interest rate of 12% and with an annual payment of $24,323 over six years. With this additional condition, the rework part (a).(d) From your answer to part (a), determine the PW loss due to inflation.(e) From your answer to part (c), determine…
Marie's Fashions is considering a.9 project that will require $ 39,000 in net working capital and $ 68,000 in fixed assets. The project is expected to produce annual sales of $ 73, 000 with associated cash costs of $ 42,500. The project has a four- year life. The company uses straight line depreciation to a zero book value over the life of the project. Ignore bonus depreciation . The tax rate is 25 percent. What is the operating cash flow for this ? project
Baghiben
Esfandairi Enterprises is considering a new three-year expansion project that requires an initial fixed asset investment of $2,300,000. The fixed asset will be depreciated straight-line to zero over its three-year tax life, after which time it will be worthless. The project is estimated to generate $3,070,000 in annual sales, with costs of $2,090,000. Assume the tax rate is 24 percent and the required return on the project is 11 percent. What is the project's NPV? Note: A negative answer should be indicated by a minus sign. Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16. Net present value 22,761.70
Baghiben
A corporate expects to receive $37,399 each year for 15 years if a particular project is undertaken. There will be an initial investment of $105,308. The expenses associated with the project are expected to be $7,716 per year. Assume straight-line depreciation, a 15- year useful life, and no salvage value. Use a combined state and federal 48% marginal tax rate, MARR of 8%, determine the project's after-tax net present worth. Enter your answer as follow: 123456.78
A firm is considering a new seven-year expansion project with an initial fixed asset investment of $3.8 million. The fixed asset will be depreciated straight-line to zero over its seven-year tax life, after which time it will be worthless. No bonus depreciation will be taken. The project is estimated to generate $2,278,000 in annual sales, with costs of $781,000. The tax rate is 27 percent and the required return is 6.2 percent. What is the net present value of this project? Instruction: Enter your response rounded to two decimal places.
Tidal Wave is considering purchasing a water park in Fort Worth, Texas, for $2,100,000. The new facility will generate annual net cash inflows of $495,000 for ten years. Engineers estimate that the facility will remain useful for ten years and have no residual value. The company uses straight-line depreciation. Its owners want payback in less than five years and an ARR of 12% or more. Management uses a 10% hurdle rate on investments of this nature. (Click the icon to view the present value annuity table.) (Click the icon to view the future value annuity table.) Read the requirements. (Click the icon to view the present value table.) (Click the icon to view the future value table.) Requirement 1. Compute the payback period, the ARR, the NPV, and the approximate IRR of this investment. (If you use the tables to compute the IRR, answer with the closest interest rate shown in the tables.) (Round the payback period to one decimal place.) The payback period (in years) is (Round the…

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