Quillen Company is performing a post-audit of a project completed one year ago. The initial estimates were that the project would cost $250,000, would have a useful life of 9 years, zero salvage value, and would result in net annual cash flows of $44,200 per year. Now that the investment has been in operation for 1 year, revised figures indicate that it actually cost $263,000, will have a total useful life of 11 years (including the year just completed), and will produce net annual cash flows of $37,700 per year. Click here to view PV table. Evaluate the success of the project. Assume a discount rate of 9%. (If the net present value is negative, use either a negative sign preceding the number eg -45 or parentheses eg (45). Round present value answers to 0 decimal places, e.g. 125. For calculation purposes, use 5 decimal places as displayed in the factor table provided.)

Quillen Company is performing a post-audit of a project completed one year ago. The initial estimates were that the project would cost $250,000, would have a useful life of 9 years, zero salvage value, and would result in net annual cash flows of $44,200 per year. Now that the investment has been in operation for 1 year, revised figures indicate that it actually cost $263,000, will have a total useful life of 11 years (including the year just completed), and will produce net annual cash flows of $37,700 per year. Click here to view PV table. Evaluate the success of the project. Assume a discount rate of 9%. (If the net present value is negative, use either a negative sign preceding the number eg -45 or parentheses eg (45). Round present value answers to 0 decimal places, e.g. 125. For calculation purposes, use 5 decimal places as displayed in the factor table provided.)

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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Quillen Company is performing a post-audit of a project completed one year ago. The initial estimates were that the project would cost $217,000, would have a useful life of 9 years, zero salvage value, and would result in net annual cash flows of $43,300 per year. Now that the investment has been in operation for 1 year, revised figures indicate that it actually cost $226,000, will have a total useful life of 11 years (including the year just completed), and will produce net annual cash flows of $37,100 per year. Click here to view PV table. Evaluate the success of the project. Assume a discount rate of 12%. (If the net present value is negative, use either a negative sign preceding the number eg -45 or parentheses eg (45). Round present value answers to O decimal places, e.g. 125. For calculation purposes, use 5 decimal places as displayed in the factor table provided.) Original estimate net present value Revised estimate net present value $ The project $ a success.
ABC, Inc is considering launching a new product which incurred $2.5 million in Research and Development expenses over the last year. The company will spend $1.8 million to acquire the equipment necessary for the manufacture of the new productThe equipment will last for 15 years and have a salvage value of $35,000. It will be depreciated to zero over 10 years using straight line depreciation. The company will also have an increase of $250,000 in accounts receivable and a decrease of $75,000 in accounts payable. The company anticipates to produce 100.000 units every year for the next 15 years and sell the units for $4 per unit The variable costs are $0.25 per unit and the annual fixed costs are projected to be $ 10,000 year. The company has a target capital structure of 40% debt and 60% equityThe company's outstanding bonds have a yield to maturity of 5.5% and the company's tax rate is 30%. The company has a beta of 1.4 , the risk free rate is 2% and the market risk 6% Answer the…
Vaughn Company is considering a capital investment of $378,400 in additional productive facilities. The new machinery is expected to have a useful life of 6 years with no salvage value. Depreciation is by the straight-line method. During the life of the investment, annual net income and net annual cash flows are expected to be $18,920 and $86,000, respectively. Vaughn has an 7% cost of capital rate, which is the required rate of return on the investment. (a1) Compute the cash payback period. (Round answer to 2 decimal places, e.g. 2.25.) Your answer is correct. Cash payback period (a2) eTextbook and Media (b) Your answer is correct. Annual rate of return Compute the annual rate of return on the proposed capital expenditure. (Round answer to 2 decimal places, e.g. 2.25%.) eTextbook and Media Your answer is correct. 4.4 years Net present value $ 10 % Attempts: 1 of 5 used Using the discounted cash flow technique, compute the net present value. (Round present value factor calculations to…
A machine purchased three years ago for $318,000 has a current book value using straight-line depreciation of $192,000; its operating expenses are $39,000 per year. A replacement machine would cost $227,000, have a useful life of nine years, and would require $10,000 per year in operating expenses. It has an expected salvage value of $71,000 after nine years. The current disposal value of the old machine is $81,000; if it is kept 9 more years, its residual value would be $18,000. Required Calculate the total costs in keeping the old machine and purchase a new machine. Should the old machine be replaced? Keep Old Machine Total costs Should the old machine be replaced? Purchase New Machine
Pina Colada Company is considering a capital investment of $419,870 in additional productive facilities. The new machinery is expected to have a useful life of 5 years with no salvage value. Depreciation is computed by the straight-line method. During the life of the investment, annual net income and cash flows are expected to be $39,000 and $121,000, respectively. Pina Colada has a 12% cost of capital rate, which is the minimum acceptable rate of return on the investment. Click here to view PV tables. (a) Compute the annual rate of return. (Round answer to 1 decimal place, e.g. 15.5.) Annual rate of return. % Compute the cash payback period on the proposed capital expenditure. (Round answer to 2 decimal places, e.g. 15.25.) Cash payback period years
NUBD Co. is planning to purchase a new machine which it will depreciate, for book purposes, on a straight-line basis over a 10 year period with no salvage value and a full year's depreciation taken in the year of acquisition. The new machine is expected to produce cash flows from operations, net of income taxes, of P66,000 a year in each of the next ten years. The accounting rate of return on the initial investment is expected to be 12%. How much will the new machine cost? *
The equipment was purchased 3 years ago by the Ajax Corporation for $1,20,000. When purchased, it had an expected service life of 10 years, an estimated salvage of $25,000 after 10 years and AOC of $30,000. Current account book value is $80,000. The system is deteriorating rapidly; 3 more years of use and then salvaging it for $10,000 are now the expectations. The AOC is averaging $30,000. An improved version is offered today for $100,000 with a trade-in of $70,000 for the current system. The price goes up next week to $110,000 with a trade in of $70,000. The engineer estimates the new equipment to have useful life of 10 years, a salvage of $20,000, and an AOC of $20,000. A $70,000 market value appraisal of the current machine was made today. What would be the decision, if a replacement study is made today.
Wade Corporation is reviewing an investment proposal. The initial cost is $105,000. Estimates of the book value of the investment at the end of each year, the net cash flows for each year, and the net income for each year are presented in the schedule below. All cash flows are assumed to take place at the end of the year. The salvage value of the investment at the end of each year is equal to its book value. There would be no salvage value at the end of the investment's life. Year 1 2 3 4 5 Investment Proposal Annual Book Value Cash Flows $70,000 42,000 21,000 7,000 0 $45,000 40,000 35,000 30,000 25,000 Annual Net Income $16,000 18,000 20,000 22,000 24,000 Wade Corporation uses a 15% target rate of return for new investment proposals. a. What is the cash payback period for this proposal? b. What is the annual rate of return for the investment? c. What is the net present value of the investment?
Perkins, Inc., is considering an investment of $378,000 in an asset with an economic life of 5 years. The firm estimates that the nominal annual cash revenues and expenses at the end of the first year will be $258,000 and $83,000, respectively. Both revenues and expenses will grow thereafter at the annual inflation rate of 2 percent. The company will use the straight-line method to depreciate its asset to zero over five years. The salvage value of the asset is estimated to be $58,000 in nominal terms at that time. The one-time net working capital investment of $16,500 is required immediately and will be recovered at the end of the project. The tax rate is 23 percent. What is the project's total nominal cash flow from assets for each year? (A negative answer should be indicated by a minus sign. Do not round intermediate calculations and round your answers to the nearest whole dollar, e.g., 32.) Year 0 Year 1 Year 2 Year 3 Year 4 Year 5 $ $ $ 6A6A $ $ $ Cash Flow -394,500 149,470 152,165…
Sunland is considering the purchase of equipment costing $147000. The equipment has a 12- year useful life, has an estimated salvage value of zero, and is expected to generate $29000 in annual cash flows. The company has a 10% required rate of return and uses the straight-line depreciation method. The accounting rate of return on this equipment is closest to 11.4%. 10.0%. 21.1%. 9.7%. O O O O
Perkins, Inc., is considering an investment of $383,000 in an asset with an economic life of 5 years. The firm estimates that the nominal annual cash revenues and expenses at the end of the first year will be $263,000 and $88,000, respectively. Both revenues and expenses will grow thereafter at the annual inflation rate of 4 percent. The company will use the straight-line method to depreciate its asset to zero over five years. The salvage value of the asset is estimated to be $63,000 in nominal terms at that time. The one-time net working capital investment of $19,000 is required immediately and will be recovered at the end of the project. The tax rate is 23 percent. What is the project’s total nominal cash flow from assets for each year? (A negative answer should be indicated by a minus sign. Do not round intermediate calculations and round your answers to the nearest whole dollar, e.g., 32.) Cash Flow Year 0 $ -402,000 Year 1 Year 2 Year 3…
A machine costs $700,000 and is expected to yield an after-tax net income of $52,000 each year. Management predicts this machine has a 10-year service life and a $100,000 salvage value, and it uses straight-line depreciation. Compute this machine’s accounting rate of return.

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