**Problem 6-11 Calculating NPV**Medavoy Company is considering a new project that complements its existing business. The machine required for the project costs $4.2 million. The marketing department predicts that sales related to the project will be $2.43 million per year for the next four years, after which the market will cease to exist. The machine will be depreciated to zero over its 4-year economic life using the straight-line method. Cost of goods sold and operating expenses related to the project are predicted to be 30 percent of sales. The company also needs to add net working capital of $160,000 immediately. The additional net working capital will be recovered in full at the end of the project’s life. The corporate tax rate is 22 percent and the required return for the project is 11 percent. What is the value of the NPV for this project? *(Do not round intermediate calculations and enter your answer in dollars, not millions of dollars, rounded to 2 decimal places, e.g., 1,234,567.89.)*| NPV | ||---------|--------|| $ | 1,466,989.35 |**Should the company proceed with the project?**- [x] Yes- [ ] NoThis problem involves calculating the Net Present Value (NPV) of a proposed project. The positive NPV suggests that the project is expected to generate more value than the cost, indicating it should be pursued.

Initial cost = $4,200,000COGS and operating expenses = 30% of salesuseful life = 4 yearsTax rate =…

Answered: Problem 6-11 Calculating NPV Medavoy…

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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A6
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9
Question 13 Mack Company has a machine with a book value of $80,000 and a remaining four-year useful life. A new machine is available at a cost of $110,000, and Mack can also receive $50,000 for trading in its old machine. The new machine will reduce variable manufacturing costs by $15,000 per year over its four-year useful life. Show the computations as to whether the machine should be replaced or kept.
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QUESTION 1 Frank Einstein Co. is a firm that specializes in selling Halloween decorations. It is evaluating a new project that requires an initial investment of $1.42 million. The asset will be depreciated to zero over its 3-year life. The company's analysts estimate that in the first year, the project will generate $1.09 million in revenues. The revenue will increase by 7% per year in the following two years. The costs in the first year will be $475,000 and they will increase by 5% per year thereafter. The corporate tax rate is 25% and the required return is 12%. What is the NPV of the project?
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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…
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# 30 Investment Criteria A new furnace for a small factory will cost $27,00 a year to install and will require ongoing maintenance expenditures of $1,500 a year. But it is far more fuel efficient than the old one and will reduce the compounding of heating oil by 2400 gallons per year. Heating oil this year will cost $3.00 per gallon; the price per gallon is expected to increase by .50 per year for the next 3 years and stabilize for the foreseeable future. The furnace will last for 20 years at which point it will need to be replaced and will have no salvage value. The discount rate id 8 %. What is the NPV of the investment in the furnace? What is the IRR? What is the payback period?

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