Quixotic Enterprises is about to embark on another venture. Poncho Sanchos, the faithful financial analyst, once again will examine the viability of this venture after 31 failures. A number of windmills are to be constructed on the southern frontier to generate electricity. They will cost $388,000 and will last 9 years, at which time they will have an estimated salvage value of $29,000. However, a capital upgrade of $99,000 will be required at the end of five years. An inventory of spare parts (working capital) amounting to $10,000 will be required during the term of the venture and will be housed in a warehouse that is currently not being used, but which has been used for Quixotic's previous ventures. The warehouse could be rented out at $5,000 per year. This enterprise is expected to generate cash from the sale of electricity of $140,000 a year for 9 years. Cash expenses for each of the 9 years will be $11,000. The company's tax rate is 23 percent, the CCA rate is 9 percent and the cost of capital is 21 percent. Requirements: A. Calculate the Net Present Value of the Windmill venture by completing the table below:. Event Expected Cash Flow After-tax Cash Flow Present Value Enter cash recelpts as positive numbers, cash payments as negative numbers. Inital Investment Working Capital Revenues -388000 -10000 -388000 -10000 140000 107800 Expenses Opportunity Cost Capital Upgrade Salvage Working Capital Revcovery CCA Tax Shield -11000 -5000 -3850 -99000 29000 -10000 N/A N/A N/A Net present value N/A B. It's not worth any marks, but it helps with the marking: what number did you use for (Cpv - Spv)? (Enter your answer as a positive number.) C. Should Quixotic dream the impossible dream and invest in the Windmill venture? No
Quixotic Enterprises is about to embark on another venture. Poncho Sanchos, the faithful financial analyst, once again will examine the viability of this venture after 31 failures. A number of windmills are to be constructed on the southern frontier to generate electricity. They will cost $388,000 and will last 9 years, at which time they will have an estimated salvage value of $29,000. However, a capital upgrade of $99,000 will be required at the end of five years. An inventory of spare parts (working capital) amounting to $10,000 will be required during the term of the venture and will be housed in a warehouse that is currently not being used, but which has been used for Quixotic's previous ventures. The warehouse could be rented out at $5,000 per year. This enterprise is expected to generate cash from the sale of electricity of $140,000 a year for 9 years. Cash expenses for each of the 9 years will be $11,000. The company's tax rate is 23 percent, the CCA rate is 9 percent and the cost of capital is 21 percent. Requirements: A. Calculate the Net Present Value of the Windmill venture by completing the table below:. Event Expected Cash Flow After-tax Cash Flow Present Value Enter cash recelpts as positive numbers, cash payments as negative numbers. Inital Investment Working Capital Revenues -388000 -10000 -388000 -10000 140000 107800 Expenses Opportunity Cost Capital Upgrade Salvage Working Capital Revcovery CCA Tax Shield -11000 -5000 -3850 -99000 29000 -10000 N/A N/A N/A Net present value N/A B. It's not worth any marks, but it helps with the marking: what number did you use for (Cpv - Spv)? (Enter your answer as a positive number.) C. Should Quixotic dream the impossible dream and invest in the Windmill venture? No
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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Transcribed Image Text:Quixotic Enterprises is about to embark on another venture. Poncho Sanchos, the faithful financial analyst, once again will examine the
viability of this venture after 31 failures.
A number of windmills are to be constructed on the southern frontier to generate electricity. They will cost $388,000 and will last 9
years, at which time they will have an estimated salvage value of $29,000. However, a capital upgrade of $99,000 will be required at
the end of five years. An inventory of spare parts (working capital) amounting to $10,000 will be required during the term of the
venture and will be housed in a warehouse that is currently not being used, but which has been used for Quixotic's previous ventures.
The warehouse could be rented out at $5,000 per year.
This enterprise is expected to generate cash from the sale of electricity of $140,000 a year for 9 years. Cash expenses for each of the
9 years will be $11,000.
The company's tax rate is 23 percent, the CCA rate is 9 percent and the cost of capital is 21 percent.
Requirements:
A. Calculate the Net Present Value of the Windmill venture by completing the table below:
Event
Expected Cash Flow
After-tax Cash Flow
Present Value
Enter cash receipts as positive numbers, cash payments as negative numbers.
Inital Investment
-388000
-388000
Working Capital
Revenues
Expenses
Opportunity Cost
Capital Upgrade
Salvage
Working Capital
Revcovery
CCA Tax Shield
Net present value
-10000
-10000
140000
107800
-11000
-5000
-3850
-99000
29000
-10000
N/A
N/A
N/A
N/A
B. It's not worth any marks, but it helps with the marking: what number did you use for (Cpv - Spv)?
(Enter your answer as a positive number.)
C. Should Quixotic dream the impossible dream and invest in the Windmill venture? No
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