Riverview Company is evaluating the proposed acquisition of a new production machine. The machine's base priceis $200,000, and installation costs would amount to $28,000. Also, $10,000 in net working capital would berequired at installation. The machine will be depreciated for 3 years using simplified straight line depreciation. Themachine would save the firm $110,000 per year in operating costs. The firm is planning to keep the machine inplace for 2 years. At the end of the second year, the machine will be sold for $100,000. Riverview has a cost ofcapital of 12% and a marginal tax rate of 34%.What is the NPV of the project?-$9.783$3,875O$9,555$12,155$19,016

NPV means Net present value.It is a capital budgeting technique used for making investment…

Answered: Riverview Company is evaluating the…

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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Tanaka Machine Shop is considering a four-year project to improve its production efficiency. Buying a new machine press for $397,000 is estimated to result in $145,000 in annual pretax cost savings. The press qualifies for 100 percent bonus depreciation and it will have a salvage value at the end of the project of $46,000. The press also requires an initial investment in spare parts inventory of $15,100, along with an additional $2,100 in inventory for each succeeding year of the project. The shop's tax rate is 21 percent and its discount rate is 8 percent. Calculate the project's NPV. Note: Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16. NPV
You must evaluate the purchase of a proposed spectrometer for the R&D department. The purchase price of the spectrometer including modifications is $290,000, and the equipment will be fully depreciated at the time of purchase. The equipment would be sold after 3 years for $48,000. The equipment would require an $8,000 increase in net operating working capital (spare parts inventory). The project would have no effect on revenues, but it should save the firm $33,000 per year in before-tax labor costs. The firm's marginal federal-plus-state tax rate is 25%. What is the initial investment outlay for the spectrometer, that is, what is the Year 0 project cash flow? Enter your answer as a positive value. Round your answer to the nearest dollar.$ What are the project's annual cash flows in Years 1, 2, and 3? Do not round intermediate calculations. Round your answers to the nearest dollar.Year 1: $ Year 2: $ Year 3: $ If the WACC is 12%, should the spectrometer be…
Kolby's Korndogs is looking at a new sausage system with an installed cost of $735,000. The asset qualifies for 100 percent bonus depreciation and can be scrapped for $101,000 at the end of the project's 5-year life. The sausage system will save the firm $215,000 per year in pretax operating costs, and the system requires an initial investment in net working capital of $67,000. If the tax rate is 21 percent and the discount rate is 8 percent, what is the NPV of this project? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.) NPV =
Abbott Mining Systems wants to determine whether it should upgrade a piece of equipment used in deep mining operations in one of its international operations now or later. If the com- pany selects plan A, the upgrade will be purchased now for $200,000. However, if the com- pany selects plan 1, the purchase will be deferred for 3 years when the cost is expected to rise to $300,000. Abbott is ambitious; it expects a real MARR of 12% per year. The inflation rate in the country has averaged 3% per year. From only an economic perspective, determine whether the company should purchase now or later (a) when inflation is not considered and (b) when inflation is considered.
Mountain Sounds Corp. is evaluating a cost savings project. The project's expected operational life is seven years. The project will save the firm $248,730 in net working capital, a one time savings for the life of the project. The project will require an investment in capital equipment of $5,631,945 and has an expected after-tax salvage value of $888,328. After considering the cash savings and depreciation impact the firm expects the project to generate operating cash flows of $1,034,805 each year for the life of the project. What is the NPV of the project if the firm's WACC is 8.9%?
Rearden Metals is considering opening a strip mining operation to provide some of the raw materials needed in producing Rearden metal. The initial purchase of the land and the associated costs of opening up mining operations will cost $100 million today. The mine is expected to generate $16 million worth of ore per year for the next 12 years. At the end of the 12th year Rearden will need to spend $20 million to restore the land to its original pristine nature appearance. The number of potential IRRs that exist for Rearden's mining operation is equal to: O A. 2 OB. 1 O C. 12 O D. 0 C
ACE Ltd is evaluating whether it should invest in a machine that costs $100,000. The machine would be fully depreciated over ten years to zero value using the straight-line depreciation method. With the new machine, the firm projects that it will be able to generate an additional $20,000 annually in sales revenue and additional $10,000 cost annually. The firm would also need an additional net working capital of $40,000. Given the firm’s cost of capital is 10% and tax rate of 20%, calculate annual operating cash flow (OCF) of the investment.
Geary Machine Shop is considering a 4-year project to improve its production efficiency. Buying a new machine press for $576,036 is estimated to result in $255,756 in annual pretax cost savings. The press falls in the MACRS five-year class (Refer to the MACRS table on page 277), and it will have a salvage value at the end of the project of $106,549. The press also requires an initial investment in spare parts inventory of $73,540, along with an additional $7,848 in inventory for each succeeding year of the project. If the shop's tax rate is 0.26 and its discount rate is 0.09, what is the total cash flow in year 4? (Do not round your intermediate calculations.) (Make sure you enter the number with the appropriate +/- sign)
You must evaluate the purchase of a proposed Spectrometer for R&D department. The purchase. Price of the spectrometer including modifications is $200,000, and the equipment will be depreciated at the time of purchase. The equipment would be sold after 3 years for $51,000. The equipment would require a $15,000 increase in net operating working capital (spare parts inventory). The project would have no effect on revenues, but it should save firm $49,000 per year in before-tax laber casts. The firm's marginal fecteral-plus-state tarrate is 25% a) What is the initial investment outlay for the Spectrumeter after bonus depreciation is considered, that is the Year 0 project cash flow? the Enter your answer as a a positive value. Rand answer to the nearest dollar. $ b.) What are the project's annual cash flows in Years Round 1, 2, and 3? Do not round intermediate calculations. your answers to the nearest dollar. Year 1: 9 Year 2: $ Year 3: $ 10 4 your
Eggz, Incorporated, is considering the purchase of new equipment that will allow the company to collect loose hen feathers for sale. The equipment will cost $455,000 and will be eligible for 100 percent bonus depreciation. The equipment can be sold for $63,000 at the end of the project in 5 years. Sales would be $347,000 per year, with annual fixed costs of $53,000 and variable costs equal to 40 percent of sales. The project would require an investment of $37,000 in NWC that would be returned at the end of the project. The tax rate is 21 percent and the required return is 13 percent. Calculate the NPV of this project. Note: Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.
Pear Orchards is evaluating a new project that will require equipment of $249,000. The equipment will be depreciated on a 5-year MACRS schedule. The annual depreciation percentages are 20.00 percent, 32.00 percent, 19.20 percent, 11.52 percent, and 11.52 percent, respectively. The company plans to shut down the project after 4 years. At that time, the equipment could be sold for $67,100. However, the company plans to keep the equipment for a different project in another state. The tax rate is 21 percent. What aftertax salvage value should the company use when evaluating the current project?.
Tanaka Machine Shop is considering a four-year project to improve its production efficiency. Buying a new machine press for $401,000 is estimated to result in $147,000 in annual pretax cost savings. The press qualifies for 100 percent bonus depreciation and it will have a salvage value at the end of the project of $48,000. The press also requires an initial investment in spare parts inventory of $15,300, along with an additional $2,300 in inventory for each succeeding year of the project. The shop's tax rate is 23 percent and its discount rate is 10 percent. Calculate the project's NPV. Note: Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16. NPV S 69,414.39

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