Required information[The following information applies to the questions displayed below.]Montego Production Company is considering an investment in new machinery for its factory. Various information about theproposed investment follows:Initial investmentUseful lifeSalvage valueAnnual net income generatedMontego's cost of capitalAssume straight line depreciation method is used.Help Montego evaluate this project by calculating each of the following:$ 860,0006 yearsNet Present Value$ 20,000$ 66,00011%Required:4. Recalculate Montego's NPV assuming its cost of capital is 12 percent. (Future Value of $1, Present Value of $1. Future Value Annuityof $1, Present Value Annuity of $1.)Note: Use appropriate factor(s) from the tables provided. Negative amount should be indicated by a minus sign. Round youranswer to 2 decimal places.

Initial investment = $860,000Annual income generated = $66,000Useful life = 6 yearsSalvage value =…

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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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A restaurant project is being evaluated that owner wishes to operate for 6 years, which has an initial investment consisting of purchasing fixed assets with following characteristics:- Furniture and kitchen equipment: Cost of $360 million, with an economic useful life of 6 years, at end of which it is estimated that they will have a scrap value of $40 million.- Miscellaneous kitchen utensils: Cost of $120 million, with an economic useful life of 3 years and a scrap value of $ 0.In addition, at end of year 3 the kitchen utensils will have to be replaced for same amount and characteristics of initial investment, since they are highly fungible assets.Sales revenue is expected to be $400 million in year 1, $700 million in year 2 and $900 million from year 4 onwards. This expected behavior is due to belief that restaurant will gain prestige and sales over time.Cost of sales is projected as 40% of sales and variable selling and administrative expenses as 4% of sales. Latter correspond to…
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nitial investment—Basic calculation Cushing Corporation is considering the purchase of a new grading machine to replace the existing one. The existing machine was purchased 2 years ago at an installed cost of $19,800; it was being depreciated under MACRS using a 5-year recovery period. (See table LOADING... for the applicable depreciation percentages.) The existing machine is expected to have a usable life of at least 5 more years. The new machine costs $35,900 and requires $4,500 in installation costs; it will be depreciated using a 5-year recovery period under MACRS. The existing machine can currently be sold for $25,700 without incurring any removal or cleanup costs. The firm is subject to a 40% tax rate. Calculate the initial investment associated with the proposed purchase of a new grading machine. Data table (Click on the icon located on the top-right corner of the data table below in order to copy its contents into a spreadsheet.) Rounded Depreciation…
onsider the following financial informationabout a retooling project at a computer manufacturing company:• The project costs $2.5 million and has a five-yearservice life.• The retooling project can be classified as sevenyear property under the MACRS rule.• At the end of the fifth year, any assets held for theproject will be sold. The expected salvage valuewill be about 10% of the initial project cost.• The firm will finance 40% of the project moneyfrom an outside financial institution at an interestrate of 10%. The firm is required to repay the loanwith five equal annual payments.• The firm’s incremental (marginal) tax rate on theinvestment is 35%.• The firm’s MARR is 18%.With the preceding financial information,(a) Determine the after-tax cash flows.(b) Compute the annual equivalent worth for thisproject.
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7. Required information [The following information applies to the questions displayed below.]Falcon Crest Aces (FCA), Inc., is considering the purchase of a small plane to use in its wing-walking demonstrations and aerial tour business. Various information about the proposed investment follows: Initial investment $170,000 Useful life 10 years Salvage value $20,000 Annual net income generated $4,000 FCA's cost of capital 8% Assume straight line depreciation method is used. Help FCA evaluate this project by calculating each of the following: Net present value (NPV). (Future Value of $1, Present Value of $1, Future Value Annuity of $1, Present Value Annuity of $1.) (Use appropriate factor(s) from the tables provided. Do not round intermediate calculations. Negative amount should be indicated by a minus sign. Round the final answer to nearest whole dollar.) Net Present Value = ? (Tables are attached here as images)
2
The following data are accumulated by Lone Peak Inc. in evaluating two competing capital investment proposals: 3D Printer Truck Amount of investment $64,000 $24,000 Useful life 4 years 7 years Estimated residual value 0 0 Estimated total income over the useful life $7,680 $9,240 Determine the expected average rate of return for each proposal. If required, round your answers to one decimal place. 3D Printer % Truck %
Subject: accounting
Problems 43 and 44 are based on the following statement: Used New machine machine Initial Cost 15,000 40,000 ($) Annual 8,000 2,000 operating cost ($/year) Salvage 5,000 10,000 value ($) Life (years) 3 6 Use an interest rate of 10% per year 43. The present worth of the new machine is closest to: (A) $43,630 (B) $43,066 (C) $45,210 (D) $49,660 44. To compare the machines on the basis of a present worth analysis, the present worth values to use are: (A) PWused $31,139, PW new = $43,066 (B) PWused $31,139, PW new = $37,461 (C) PWused $54,533, PW new = $43,066 (D) PWused $54,533, PW new = $37,461
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