Problem 22-15Management of Braden Boats, Inc. is considering an expansion in the firm's product line that requires the purchase of an additional$160,000 in equipment with installation costs of $15,000 and removal expenses of $4,500 (Note: the removal expenses are consideredterminal cash flows and not associated with the installation of the new equipment). The equipment and installation costs will bedepreciated over five years using straight-line depreciation. The expansion is expected to increase earnings before depreciation and taxesas follows:Years 1 and 2$64,000Years 3 and 4$51,000The firm's income tax rate is 30 percent and the weighted-average cost of capital is 6 percent. Based on the net present value method ofcapital budgeting, should management undertake this project? Use Appendix B to answer the question. Use a minus sign to enter anegative value, if any. Round your answer to the nearest dollarNPV: $The firm -Select-Year 5$50,000make the investment.

Net Present value is also known as NPV. it is a capital budgeting techniques which help in decision…

Answered: Problem 22-15 Management of Braden…

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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QUESTION 10 Georgia Mills Company (GMC) purchase a milling machine, which it intends to use for the next five years, for $180,000. This machine is expected to save GMC $35,000 during the first operating year. Then, the annual savings are expected to decrease by 3% each subsequent year over the previous year due to increased maintenance costs. Assuming that GMC would operate the machine for an average of 5,000 hours per year and that the machine would have no appreciable salvage value at the end of the five year period, determine the equivalent dollar savings per operating hour at 15% interest compounded annually. OA $3.24 lost per hour OB. $4.09 lost per hour OC $6.74 lost per hour D.$5.92 lost per hour
5:10 K (Net present value calculation) Carson Trucking is considering whether to expand its regional service center in Mohab, UT. The expansion requires the expenditure of $10,500,000 on new service equipment and would generate annual net cash inflows from reduced costs of operations equal to $2,000,000 per year for each of the next 9 years. In year 9 the firm will also get back a cash flow equal to the salvage value of the equipment, which is valued at $1.2 million. Thus, in year 9 the investment cash inflow totals $3,200,000. Calculate the project's NPV using a discount rate of 8 percent. If the discount rate is 8 percent, then the project's NPV is $ ||| C... = LTE 2.1 4G O 55% (Round to the nearest dollar.)
Problem 6-4 Calculating Project Cash Flow from Assets Esfandairi Enterprises is considering a new 3-year expansion project that requires an initial fixed asset investment of $2.29 million. The fixed asset will be depreciated straight-line to zero over its 3-year tax life. The project is estimated to generate $1,790,000 in annual sales, with costs of $700,000. The project requires an initial investment in net working capital of $410,000, and the fixed asset will have a market value of $420,000 at the end of the project. a. If the tax rate is 21 percent, what is the project's Year O net cash flow? Year 1? Year 2? Year 3? (Do not round intermediate calculations and enter your answers in dollars, not millions of dollars, e.g., 1,234,567. A negative answer should be indicated by a minus sign.) b. If the required return is 12 percent, what is the project's NPV? (Do not round intermediate calculations and enter your answer in dollars, not millions of dollars, rounded to 2 decimal places,…
#3 Caspian Sea Drinks is considering the purchase of a new water filtration system produced by Rube Goldberg Machines. This new equipment, the RGM-7000, will allow Caspian Sea Drinks to expand production. It will cost $15.00 million fully installed and will be fully depreciated over a 20 year life, then removed for no cost. The RGM-7000 will result in additional revenues of $2.77 million per year and increased operating costs of $564,995.00 per year. Caspian Sea Drinks' marginal tax rate is 28.00%. If Caspian Sea Drinks uses a 12.00% discount rate, then the net present value of the RGM-7000 is _____. Answer format: Currency: Round to: 2 decimal places.
Problem 6-6 NPV and Bonus Depreciation Esfandairi Enterprises is considering a new 3-year expansion project that requires an initial fixed asset investment of $2.29 million. The fixed asset qualifies for 100 percent bonus depreciation. The project is estimated to generate $1,790,000 in annual sales, with costs of $684,000. The project requires an initial investment in net working capital of $410,000, and the fixed asset will have a market value of $420,000 at the end of the project. a. If the tax rate is 21 percent, what is the project's Year O net cash flow? Year 1? Year 2? Year 3? (A negative answer should be indicated by a minus sign. Do not round intermediate calculations and enter your answers in dollars, not millions of dollars, e.g., 1,234,567.) b. If the required return is 12 percent, what is the project's NPV? (Do not round intermediate calculations and enter your answer in dollars, not millions of dollars, rounded to two decimal places, e.g., 1,234,567.89.) a. Year 0 cash…
3 TWO PROJECTS A company wishes to use a five-year time scale over which to appraise the following projects, with no allowance for scrap values. Its required rate of return is 17%. Project X Purchase of patent rights to a new process at an initial cost of $320,000 payable immediately. The new process will enable the company to reduce its labour force, at present incurring a total wages bill of $280,000, by a quarte: and will allow an increased production capacity of 5,000 units per year of another existing product which at present is sold at $12 per unit with direct costs of $6. There is an 80% chance that the extra potential production could all be sold, with a 20% chance of demand only taking up an extra 3,000 units per year. Production would be adjusted to match demand. This product is made with hardly any labour. Project Y Installation of a mini-computer to deal with the accounting functions at an annual rental charge of $50.000, paid in advance At present the company uses an IT…
8
Brief Exercise 12-9 Swift Oil Company is considering investing in a new oil well. It is expected that the oil well will increase annual revenues by $123,465 and will increase annual expenses by $67,000 including depreciation. The oil well will cost $481,000 and will have a $10,000 salvage value at the end of its 10-year useful life. Calculate the annual rate of return. (Round answer to 0 decimal places, e.g. 13%.) Annual rate of return % Click if you would like to Show Work for this question: Open Show Work
Typed solution only A company is trying to make a long-term investment decision: should it or should it not manufacture a new product? The company believes that$208,000 would need to be immediately invested into buying the required production equipment. At the end of Year 4 this investment project is likely to end. When that happens, all used equipment will be sold and bring the company $187,000 as the after-tax salvage value. A cash reserve in the amount of $38,000 would need to be set aside when the project begins, so that the company can cover any kind of repair costs to maintain the equipment, should those arise. This cash reserve will be increased by $6,000 each year and recovered when the project ends. The company estimates $75,000in after-tax profits (i.e., operating cash flow) each year of the project. The required rate of return is 10.8%. Calculate the Net Present Value of this project. Increase decimal places for any intermediate calculations, from the default 2 to 6 or…
A company is considering a 4-year project with the following cash flows: C0 =-$20,000 C1 =C2 =C3 =C4 =$7,000 If the company’s opportunity cost of capital is 12%, then compute the following for the project: a) the project’s NPV b) the project’s IRR c) determine if the project will have more than 1 IRR d) The project’s PI e) Should the project be rejected because its payback period is longer than two years? f) Should the project be rejected because its IRR is greater than its required rate of return?
Why is the answer $720,000? Can someone walk me through this?
Problem 7-18 Abandonment We are examining a new project. We expect to sell 6,100 units per year at $75 net cash flow apiece for the next 10 years. In other words, the annual operating cash flow is projected to be $75 x 6,100 $457,500. The relevant discount rate is 18 percent, and the initial investment required is $1,720,000. After the first year, the project can be dismantled and sold for $1,550,000. Suppose you think it is likely that expected sales will be revised upward to 9,100 units if the first year is a success and revised downward to 4,700 units if the first year is not a success. a. If success and failure are equally likely, what is the NPV of the project? Consider the possibility of abandonment in answering. (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.) b. What is the value of the option to abandon? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.) a. NPV b. Option value S $…

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