Project cash flow and NPV. The managers of Classic Autos Incorporated plan to manufacture classic Thunderbirds (1957 replicas). The necessary foundryequipment will cost a total of $4,000,000 and will be depreciated using a five-year MACRS life, The sales manager has an estimate for the sale of theclassic Thunderbirds. The annual sales volume will be as follows:Year one: 250Year two: 270Year three: 340Year four: 370Year five: 330If the sales price is $27,000 per car, variable costs are $17,000 per car, and fixed costs are $1,400,000 annually, what is the annual operating cash flow if thetax rate is 30%? The equipment is sold for salvage for $500,000 at the end of year five. Net working capital increases by $600,000 at the beginning of theproject (year 0) and is reduced back to its original level in the final year. Find the internal rate of return for the project using the incremental cash flows.First, what is the annual operating cash flow of the project for year 1?(Round to the nearest dollar.)

IRR is also known as Internal rate of Return. It is a capital budgeting technique which helps in…

Answered: Project cash flow and NPV. The managers…

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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The production department is proposing the purchase of an automatic insertion machine. It has identified 3 machines, each with an estimated life of 10 years. Which machine offers the best internal rate of return? Annual net cash flows Average investment Machine A only Machine B only Machine C only O Machines A and B Machine A $ 50,000 250,000 Machine B $ 40,000 300,000 Machine $ 75,000 500,000
Required information. [The following information applies to the questions displayed below.] Project Y requires a $331,500 investment for new machinery with a five-year life and no salvage value. The project yields the following annual results. Cash flows occur evenly within each year. (PV of $1. FV of $1. PVA of $1. and FVA of $1) Note: Use appropriate factor(s) from the tables provided. Annual Amounts Sales of new product Expenses Materials, labor, and overhead (except depreciation). Depreciation Machinery Selling, general, and administrative expenses Income Years 1-5 4. Determine Project Y's net present value using 9% as the discount rate. Note: Do not round intermediate calculations. Round your present value factor to 4 decimals and final answers to the nearest whole dollar. Net present value Not Cash Flows Project Y $ 400,000 Present Value of Annuity at 9% 179,200 66,300 29,000 $ 125,500 Present Value of Net Cash Flows
The production department is proposing the purchase ONE automatic insertion machine. It has identified three machines (A, B and C). Each machine has an estimated useful life of 10 years. minimum desired rate of return of 10%. The accountant has identified the following data: Machine A Machine B Machine C Present value of future cash flows computed using 10% rate of return $305,000 $295,000 $300,500 Amount of initial investment 300,000 300,000 300,000 Based on net present value method, which machine do you recommend?
Dd.112.
National Integrated Systems (NIS), a global provider of heating and air conditioning is planning a project whose data is provided below. The project’s equipment has a 3 year tax life after which its salvage value will be zero. The machinery will be depreciated on a straight line basis over three years. Revenues and other operating costs are expected to be constant over the project’s life. What is the project’s cash flow in Year 1? Equipment Cost = $130,000Depreciation rate = 33.33%Annual Sales Revenue= $120,000Operating Costs (ex Depreciation) = $50,000 Tax Rate = 35%
Factor Company is planning to add a new product to its line. To manufacture this product, the company needs to buy a new machine at a $491,000 cost with an expected four-year life and a $20,000 salvage value. Additional annual information for this new product line follows. (PV of $1. EV of $1. PVA of $1, and EVA of $1) (Use appropriate factor(s) from the tables provided.) Sales of new product Expenses Materials, labor, and overhead (except depreciation) Depreciation-Machinery Selling, general, and administrative expenses Required: 1. Determine income and net cash flow for each year of this machine's life. 2. Compute this machine's payback period, assuming that cash flows occur evenly throughout each year. 3. Compute net present value for this machine using a discount rate of 7%. $ 1,990,000 1,509,000 117,750 162,000 Answer is complete but not entirely correct. Complete this question by entering your answers in the tabs below. Required 1 Required 2 Required 3 Compute net present value…
Project A requires a $405,000 initial investment for new machinery. Project A is expected to yield income of $25,200 per year and net cash flow of $97,600 per year for the next five years. Compute Project A's payback period. Payback Period Numerator: = +/ = = Denominator: Payback Period Payback period 0 Please provide detailed solution
A project to control flooding from rare, but sometimes heavy, rainfalls in the arid southwest will have the following cash flow estimates. Determine which project should be selected on the basis of a B/C analysis using an interest rate of 8% per year and a 20-year study period.
A clinic is considering the possibility of two new purchases: new MRI equipment and new biopsy equipment. Each project requires an investment of $425,000. The expected life for each is five years with no expected salvage value. The net cash inflows associated with the two independent projects are as follows: 1. Compute the payback period for each project. 2. Compute the accounting rate of return for each project.
Flounder Manufacturing Company is considering three new projects, each requiring an equipment investment of $23,800. Each project will last for 3 years and produce the following cash flows. Year 1 2 3 Total (a) AA BB $7,600 $10,300 $11,600 10,300 10,600 10,300 9,600 15,600 $32,800 Click here to view PV tables. The salvage value for each of the projects is zero. Flounder uses straight-line depreciation. Flounder will not accept any project with a payback period over 2.2 years. Flounder's minimum required rate of return is 12%. Payback period (b) Your answer is correct. Compute each project's payback period. (Round answers to 2 decimal places, e.g. 52.75.) Most desirable $30,900 $31,800 Least desirable CC Indicating the most desirable project and the least desirable project using this method. Project CC eTextbook and Media 9,600 Project AA Most desirable Net present value $ Least desirable AA 2.42 years AA BB Compute the net present value of each project. (Use the above table.) (Round…
A company is evaluating a capital investment with the following projections: Initial Investment = $75,000 Salvage value = $15,000 Project life = 10 years Capital budgeting assumptions: Old Machine is fully depreciated Old machine annual operating cost: 40,000 Old machine annual maintenance cost: 10,000 New machine annual operating cost: 20,000 New machine annual maintenance cost: 9,000 Discount rate: 10% Tax rate: 20% What is the project's internal rate of return (IRR)?Answer as a whole number. 5% would be answered as 5.

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