QUESTION 4 You are considering starting a new factory producing small electric heaters. Each unit will sell at a price of $125. The production cost of each heater is $110. The fixed cost of production is $45000. You are expecting to sell 10500 units per year. This project has an economic life of 9 years. The project requires an investment of $555000 in plants and equipment. This equipment will be depreciated using a straight line depreciation method to a salvage value of zero. The required rate of return for the project is 8 percent. The marginal corporate tax rate is 21 percent. Based on these assumptions, calculate the degree of operating leverage (DOL)? 3.4 O 3.1 O 3.2 O 3.3

QUESTION 4 You are considering starting a new factory producing small electric heaters. Each unit will sell at a price of $125. The production cost of each heater is $110. The fixed cost of production is $45000. You are expecting to sell 10500 units per year. This project has an economic life of 9 years. The project requires an investment of $555000 in plants and equipment. This equipment will be depreciated using a straight line depreciation method to a salvage value of zero. The required rate of return for the project is 8 percent. The marginal corporate tax rate is 21 percent. Based on these assumptions, calculate the degree of operating leverage (DOL)? 3.4 O 3.1 O 3.2 O 3.3

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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#3 Caspian Sea Drinks is considering the production of a diet drink. The expansion of the plant and the purchase of the equipment necessary to produce the diet drink will cost $22.00 million. The plant and equipment will be depreciated over 10 years to a book value of $3.00 million, and sold for that amount in year 10. Net working capital will increase by $1.08 million at the beginning of the project and will be recovered at the end. The new diet drink will produce revenues of $8.64 million per year and cost $1.58 million per year over the 10-year life of the project. Marketing estimates 17.00% of the buyers of the diet drink will be people who will switch from the regular drink. The marginal tax rate is 21.00%. The WACC is 10.00%. Find the NPV (net present value). Answer format: Currency: Round to: 2 decimal places.
3. Dog Up! Franks is looking at a new sausage system with an installed cost of $730,000. This cost will be depreciated straight-line to zero over the project's 7- year life, at the end of which the sausage system can be scrapped for $100,000. The sausage system will save the firm $213,000 per year in pretax operating costs, and the system requires an initial investment in net working capital of $65,000. A. What is the aftertax salvage value of the equipment? B. What is the annual operating cash flow? C. If the tax rate is 25 percent and the discount rate is 11 percent, what is the NPV of this project?
Give typing answer with explanation and conclusion Caspian Sea Drinks is considering the production of a diet drink. The expansion of the plant and the purchase of the equipment necessary to produce the diet drink will cost $25.00 million. The plant and equipment will be depreciated over 10 years to a book value of $3.00 million, and sold for that amount in year 10. Net working capital will increase by $1.35 million at the beginning of the project and will be recovered at the end. The new diet drink will produce revenues of $9.15 million per year and cost $1.93 million per year over the 10-year life of the project. Marketing estimates 10.00% of the buyers of the diet drink will be people who will switch from the regular drink. The marginal tax rate is 32.00%. The WACC is 13.00%. Find the NPV (net present value).
#4 Caspian Sea Drinks is considering the production of a diet drink. The expansion of the plant and the purchase of the equipment necessary to produce the diet drink will cost $27.00 million. The plant and equipment will be depreciated over 10 years to a book value of $2.00 million, and sold for that amount in year 10. Net working capital will increase by $1.48 million at the beginning of the project and will be recovered at the end. The new diet drink will produce revenues of $9.35 million per year and cost $1.56 million per year over the 10-year life of the project. Marketing estimates 17.00% of the buyers of the diet drink will be people who will switch from the regular drink. The marginal tax rate is 24.00%. The WACC is 10.00%. Find the IRR (internal rate of return). Answer format: Percentage Round to: 4 decimal places (Example: 9.2434%, % sign required. Will accept decimal format rounded to 6 decimal places (ex: 0.092434))
NEED ASAP !!!! WITH EXPLANATION Santos Company needs a new cutting machine. The company is considering two machines: machine X and machine Y. Machine A costs$18,000, has a useful life of ten years, and will reduce operating costs by $7,000 per year. Machine B costs only $12,500, will also reduceoperating costs by $3,500 per year, but has a useful life of only five years.The payback period formula is = Investment required / Annual Net Cash Inflow Which machine should be purchased according to the payback method? a)Machine Xb) none of the abovec) Machine Yd) Both have the same payback period
You have just been offered a contract worth $ 1.15 million per year for 7 years. However, to take the contract, you will need to purchase some new equipment. Your discount rate for this project is 12.4%. You are still negotiating the purchase price of the equipment. What is the most you can pay for the equipment and still have a positive NPV? Question content area bottom Part 1 The most you can pay for the equipment and achieve the 12.4% annual return is $ enter your response here million. Round to two decimal places.)
Question 07: Virat Kohli Welders is planning to replace an old machine with a new one to improve efficiency in its production process. The machine will increase the efficiency as it is more modern and will result in an incremental savings of $80,000 per year. The old machine was bought 3 years ago at a cost of $270,000. The new machine will cost $420,000. Both machines have useful lives of 6 years. The machines are depreciated to zero for tax purpose over the six-year life using a straight-line depreciation method. The tax rate is 34% and the required rate of return is 11%. The old machine has no salvage value at the end of its life but can be sold now at a cost of $100,000. The new machine will have a salvage value of $80,000 at the end of its life. Should the new machine be purchased?
Suppose we are thinking about replacing an old computer with a new one. The old one cost us $1,680,000; the new one will cost, $2,027,000. The new machine will be depreciated straight-line to zero over its five-year life. It will probably be worth about $450,000 after five years. The old computer is being depreciated at a rate of $360,000 per year. It will be completely written off in three years. If we don't replace it now, we will have to replace it in two years. We can sell it now for $558,000; in two years, it will probably be worth $162,000. The new machine will save us $378,000 per year in operating costs. The tax rate is 21 percent, and the discount rate is 12 percent. a-1. Calculate the EAC for the the old computer and the new computer. (A negative answer should be indicated by a minus sign. Do not round intermediate calculations and round your answers to 2 decimal places, e.g., 32.16.) a-2. What is the NPV of the decision to replace the computer now? (A negative answer should…
give me the right answer only ASAP Suppose we are thinking about replacing an old computer with a new one. The old one cost us $1.4 million; the new one will cost $1.7 million. The new machine will be depreciated straight-line to zero over its five-year life. It will probably be worth about $325,000 after five years. The old computer is being depreciated at a rate of $281,000 per year. It will be completely written off in three years. If we don’t replace it now, we will have to replace it in two years. We can sell it now for $450,000; in two years, it will probably be worth $130,000. The new machine will save us $315,000 per year in operating costs. The tax rate is 22 percent, and the discount rate is 12 percent. a-1. Calculate the EAC for the old and the new computer. (A negative answer should be indicated by a minus sign. Do not round intermediate calculations and round your answers to 2 decimal places, e.g., 32.16.) a-2. What is the NPV of the decision to…
Suppose we are thinking about replacing an old computer with a new one. The old one cost us $1,960,000; the new one will cost, $2,531,000. The new machine will be depreciated straight-line to zero over its five-year life. It will probably be worth about $660,000 after five years. The old computer is being depreciated at a rate of $472,000 per year. It will be completely written off in three years. If we don't replace it now, we will have to replace it in two years. We can sell it now for $684,000; in two years, it will probably be worth $204,000. The new machine will save us $413,000 per year in operating costs. The tax rate is 25 percent, and the discount rate is 8 percent. a-1. Calculate the EAC for the the old computer and the new computer. (A negative answer should be indicated by a minus sign. Do not round intermediate calculations and round your answers to 2 decimal places, e.g., 32.16.) a - What is the NPV of the decision to replace the computer now? (A negative answer should be…
#3 Caspian Sea Drinks is considering the production of a diet drink. The expansion of the plant and the purchase of the equipment necessary to produce the diet drink will cost $22.00 million. The plant and equipment will be depreciated over 10 years to a book value of $1.00 million, and sold for that amount in year 10. Net working capital will increase by $1.37 million at the beginning of the project and will be recovered at the end. The new diet drink will produce revenues of $9.24 million per year and cost $2.26 million per year over the 10-year life of the project. Marketing estimates 20.00% of the buyers of the diet drink will be people who will switch from the regular drink. The marginal tax rate is 33.00%. The WACC is 15.00%. Find the NPV (net present value). Submit Answer format: Currency: Round to: 2 decimal places.
Emperor's Clothes Fashions can invest $5 million in a new plant for producing invisible makeup. The plant has an expected life of 5 years, and expected sales are 6 million jars of makeup a year. Fixed costs are $3.8 million a year, and variable costs are $2.50 per jar. The product will be priced at $3.90 per jar. The plant will be depreciated straight-line over 5 years to a salvage value of zero. The opportunity cost of capital is 10%, and the tax rate is 30%. a. What is project NPV under these base-case assumptions? Note: Do not round intermediate calculations. Enter your answer in millions, rounded to 2 decimal places. b. What is NPV if variable costs turn out to be $2.80 per jar? Note: Do not round intermediate calculations. Enter your answer in millions, rounded to 2 decimal places. c. What is NPV if fixed costs turn out to be $3.3 million per year? Note: Do not round intermediate calculations. Enter your answer in millions, rounded to 2 decimal places. d. At what price per jar…

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