Riverbed's Accounting Museum is exploring the purchase of a new building with a useful life of 15 years to use as its main galleryspace. The building will cost $1,098,000. Once it has been purchased, the museum will terminate its current lease, which costs$65,700 per year. The new gallery will allow the museum to display more of its permanent collection, as well as to showcase travelingexhibits. The increased exhibit space, along with the new building's location, is expected to increase admissions revenue by $25,800per year.Calculate the payback period for the proposed investment in the building. Assume that all cash flows occur evenly throughout the year.Payback periodyears

Payback period (PBP) refers to the period or duration within which the company is able to recover…

Answered: Riverbed's Accounting Museum is…

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 Department of Engineering is contemplating the purchase of a top-of-the- line PCB drilling machine to be used in its laboratories. The price of the machine is $5,000. The depreciation rate of the machine follows the SL method over its 10 years life. The market value of the machine at the end of its life is estimated to be $1,000. Annual fees paid by students to use the machine are estimated to be $500. What is the interest rate that would make this purchase break even if the Department would sell the machine at EOY 8? (Hint: the market value at EOY 8 is the book value of the machine at the time).
The Ocean City water park is considering the purchase of a new log flume ride. The cost to purchase the equipment is $8,000,000, and it will cost an additional $475,000 to have it installed. The equipment has an expected life of 6 years, and it will be depreciated using a MACRS 7-year class life. Management expects to run about 150 rides per day, with each ride averaging 35 riders. The season will last for 120 days per year. In the first year, the ticket price per rider is expected to be $5.25, and it will be increased by 4% per year. The variable cost per rider will be $1.65, and total fixed costs will be $525,000 per year. After six years, the ride will be dismantled at a cost of $245,000 and the parts will be sold for $600,000. The cost of capital is 8.5%, and its marginal tax rate is 25%. Calculate the NPV, IRR, and MIRR of the new equipment. Is the project acceptable?
The college is considering funding options for new engineering building on campus. The money has been raised for the construction costs and now the focus is raising funds for the annual upkeep and maintenance (U&M) expenses. For this building, contractors will be hired with a series of 3-year agreements over the 30 years. Under each contract the university will pay $125,000 at the beginning of each 3-year agreement to cover all U&M building expenses over that 3-year period. The first 3-year agreement begins when the building opens. A wealthy alumnus (you one day) has agreed to donate enough at the building opening to cover the U&M expenses over the 30- year term. If money invested by the school's engineering foundation earns 6% interest compounded quarterly, how much must be donated. (Hint: Build a spreadsheet like the one below) Year 0 3 6 9 12 15 18 21 24 27 Cost Rate Cash Flow FERH $125,000 $ 125,000.00 Present Worth 6% $125,000 3 year U&M Contract Cost Annual Interest Rate…
Fisher Ferry Company operates a high speed passenger ferry service across the Mississippi River. One of its ferryboats is in poor condition. This ferry can be renovated at an immediate cost of $ 200,000. Further repairs and an overhaul of the motor will be needed five years from now at a cost of $ 100,000. In all, the ferry will be usable for 10 years if this work is done. At the end of 10 years, the ferry will have to be scrapped at a value of $ 60,000. The scrap value of the ferry right now is $ 70,000. It will cost $ 300,000 yearly to operate the ferry, and revenues will total $ 400,000 annually. As an alternative, Fisher Ferry Company can purchase a new ferryboat at a cost of $ 720,000. If the company decides to purchase the new one, the old one will be sold right away. The new ferry will have a life of 10 years, but it will require some repairs costing $ 30,000 at the end of five years. At the end of 10 years, the ferry will have a scrap value of $ 60,000. It will cost $ 210,000…
A new solid waste treatment plant is to be constructed in Washington County. The initial installation will cost $35 million (M). After 10 years, minor repair and renovation (R&R) will occur at a cost of $14M will be required; after 20 years, a major R&R costing $20M will be required. The investment pattern will repeat every 20 years. Each year during the 20-year period, operating and maintenance (O&M) costs will occur. The first year, O&M costs will total $2M. Thereafter, O&M costs will increase at a compound rate of 4% per year. Based on a 4% MARR, what is the capitalized cost for the solid waste treatment plant?
The Ocean City water park is considering the purchase of a new log flume ride. The cost to purchase the equipment is $8,000,000, and it will cost an additional $475,000 to have it installed. The equipment has an expected life of 6 years, and it will be depreciated using a MACRS 7-year class life. Management expects to run about 150 rides per day, with each ride averaging 35 riders. The season will last for 120 days per year. In the first year, the ticket price per rider is expected to be $5.25, and it will be increased by 4% per year. The variable cost per rider will be $1.65, and total fixed costs will be $525,000 per year. After six years, the ride will be dismantled at a cost of $245,000 and the parts will be sold for $600,000. The cost of capital is 8.5%, and its marginal tax rate is 25%. a. Calculate the initial outlay, annual after-tax cash flow for each year, and the terminal cash flow.
Temporary Housing Services Incorporated (THSI) is considering a project that involves setting up a temporary housing facility in an area recently damaged by a hurricane. THSI will lease space in this facility to various agencies and groups providing relief services to the area. THSI estimates that this project will initially cost $4 million to set up and will generate $20 million in revenues during its first and only year in operation (paid in one year). Operating expenses are expected to total $8 million during this year and depreciation expense will be another $2 million. THSI will require no working capital for this investment. THSI's tax-rate is 20% Assume that THSI's cost of capital for this project is 15%. The net present value (NPV) of this temporary housing project is closest to:
APA is planning to expand its operations and plans to purchase a parcel of land on which to construct a building for their review center, which they will need 5 years hence. The current costs are: land: P2M; building: P3.5M. Since these are not needed immediately, the company plans to defer the purchase of the land and the construction of the building until they are needed. If the value of the land and the cost of the building are expected to appreciate at the rates of 10% and 8% per annum, respectively. What will be the total cost of the investment after 5 years? A. P8,580,275.74 B. P7,244,668.37 C. P8,363,668.27 D. None of these
The Ocean City water park is considering the purchase of a new log flume ride. The cost to purchase the equipment is $8,000,000, and it will cost an additional $475,000 to have it installed. The equipment has an expected life of 6 years, and it will be depreciated using a MACRS 7-year class life. Management expects to run about 150 rides per day, with each ride averaging 35 riders. The season will last for 120 days per year. In the first year, the ticket price per rider is expected to be $5.25, and it will be increased by 4% per year. The variable cost per rider will be $1.65, and total fixed costs will be $525,000 per year. After six years, the ride will be dismantled at a cost of $245,000 and the parts will be sold for $600,000. The cost of capital is 8.5%, and its marginal tax rate is 25%. Using Goal Seek, calculate the minimum ticket price that must be charged in the first year in order to make the project acceptable.
On April 30, 2020, Flounder Corporation ordered a new passenger ship, which was delivered to the designated cruise port and available for use as of June 30, 2020. Overall, the cost of the ship was $93 million, with an estimated useful life of 12 years and residual value of $30 million. Flounder expects that the new ship, as a whole, will provide its greatest economic benefits in its early years of operation. After further research and discussion with management, it is determined that the ship consists of major parts with differing useful lives, residual values, and patterns of providing economic benefits: Part Cost Useful life Residual value Pattern ofbenefits Total output(nautical miles) Engines (6) $975,000 per engine 8 years $100,000 per engine Varies with activity 7 million Hull $3,900,000 10 years $503,000 Highest in early years 7.90 million Body $83.25 million 15 years $15.21 million Evenly over life of body 12.30…
Fish-or-Cut-Bait excursion boats has just purchased a new 22 passenger skimmer for use over the next 10 years. The cost of the boat was $80,000. The income associated with the boat is expected to be $15,000 each year and the costs are estimated to be $2,000 the first year and increase by $500 per year each year thereafter. The salvage value of the boat is estimated to be $5,000. If the MARR is 5%, what is the payback for the boat?
A construction company is considering acquiring a new earthmover. The purchase price is $110,000, and an additional $25,000 is required to modify the equipment for special use by the company. The equipment falls into the MACRS seven-year classification (the tax life), and it will be sold after five years (the project life) for $50,000. The purchase of the earthmover will have no effect on revenues, but the machine is expected to save the firm $68,000 per year in before-tax operating costs, mainly labor. The firm's marginal tax rate is 25%. Assume that the initial investment is to be financed by a bank loan at an interest rate of 10% payable annually. Determine the after-tax cash flows by using the generalized cash flow approach and the worth of the investment for this project if the firm's MARR known to be 12%. Click the icon to view the MACRS depreciation schedules. Click the icon to view the interest factors for discrete compounding when /= 10% per year. Click the icon to view the…

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