Rosman Company has an opportunity to pursue a capital budgeting project with a five-year time horizon. After carefulstudy, Rosman estimated the following costs and revenues for the project:Cost of new equipment neededSale of old equipment no longer neededWorking capital neededEquipment maintenance in each of Years 3 and 4Annual revenues and costs:Sales revenuesVariable expensesFixed out-of-pocket operating costs$430,000$ 82,000$ 67,000$ 22,000$430,000$185,000$104,000The new piece of equipment mentioned above has a useful life of five years and zero salvage value. The old piece ofequipment mentioned above would be sold at the beginning of the project and there would be no gain or loss realizedon its sale. Rosman uses the straight-line depreciation method for financial reporting and tax purposes. The company'stax rate is 30% and its after-tax cost of capital is 11%. When the project concludes in five years the working capital willbe released for investment elsewhere within the company.Click here to view Exhibit 14B-1 and Exhibit 14B-2, to determine the appropriate discount factor(s) using tables.Net present valueRequired:Calculate the net present value of this investment opportunity. (Round your final answer to nearest whole dollar.)

Net present value is one of the time value based capital budgeting methods and can be found as the…

Answered: Rosman Company has an opportunity to…

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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Cash PaybackAnderson Company must evaluate two capital expenditure proposals. Anderson's hurdle rate is 12%. Data for the two proposals follow. Proposal X Proposal Y Required investment $360,000 $360,000 Annual after-tax cash inflows 80,400 After-tax cash inflows at the end of years 3, 6, 9, and 12 188,000 Life of project 12 years 12 years What is the cash payback period for Proposal X? For Proposal Y? Hint: For Proposal Y, in what year (3, 6, 9 or 12) will the full original investment be recovered? Round Proposal X answer to one decimal place, if applicable. Proposal X Answer years Proposal Y Answer years
Sheridan Mills management is evaluating two alternative heating systems. Costs and projected energy savings are given in the following table. The firm uses 11.50 percent to discount such project cash flows. Year System 100 System 200 0 –$1,982,100 –$1,854,200 1 206,910 763,700 2 429,830 589,800 3 743,040 671,900 4 1,046,900 426,300 What is the NPV of the systems? (Enter negative amounts using negative sign, e.g. -45.25. Do not round discount factors and intermediate calculations. Round final answers to 0 decimal places, e.g. 5,275.)
A firm with a 13% WACC is evaluating two projects for this year's capital budget. After-tax cash flows, including depreciation, are as follows: 0 1 + 2 + -Select- % Project M -$6,000 $2,000 $2,000 $2,000 $2,000 $2,000 Project N -$18,000 $5,600 $5,600 $5,600 $5,600 $5,600 a. Calculate NPV for each project. Do not round intermediate calculations. Round your answers to the nearest cent. Project M: $ Project N: $ Calculate IRR for each project. Do not round intermediate calculations. Round your answers to two decimal places. Project M: Project N: Calculate MIRR for each project. Do not round intermediate calculations. Round your answers to two decimal places. Project M: Project N: Calculate payback for each project. Do not round intermediate calculations. Round your answers to two decimal places. Project M: Project N: years Calculate discounted payback for each project. Do not round intermediate calculations. Round your answers to two decimal places. Project M: Project N: years b. Assuming…
Required information [The following information applies to the questions displayed below.] Cardinal Company is considering a five-year project that would require a $2,800,000 investment in equipment with a useful life of five years and no salvage value. The company's discount rate is 14%. The project would provide net operating income in each of five years as follows: Sales Variable expenses Contribution margin $ 2,845,000 1,109,000 1,736,000 Fixed expenses: Advertising, salaries, and other fixed out-of-pocket costs $ 799,000 Depreciation 560,000 Total fixed expenses 1,359,000 $ 377,000 Net operating income Click here to view Exhibit 7B-1 and Exhibit 7B-2, to determine the appropriate discount factor(s) using table. 6. What is the project's internal rate of return? Project's internal rate of return %
Using the following information find the project's cash flow. Once you have that information find the NPV, PI and IRR. Cost of new equipt 7,800,000 Installation costs 200,000 Unit Sales Year Units sold 1 80,000 2 130,000 3 140,000 4 90,000 5 70,000 Sales price per unit $300 in years 1-4, $250 in year 5 Variable cost per unit $225/unit Annual fixed costs $225,000 in years 1-5 Working capital requirements: Initial working capital requirement $100,000 Each year net working capital equal to 10% of the year's sales All working capital terminated at the end of year 5 Depreciation Bonus depreciation method - all is taken in year 1 Income tax rate 21% Required rate of return 12%
You are considering the following project. What is the NPV of the project? WACC of the project: 0.10 Revenue growth rate: 0.05 Tax rate: 0.40 Revenue for year 1: 13,000 Fixed costs for year 1: 3,000 variable costs (% of revenue): 0.30 project life: 3 years Economic life of equipment: 3 years Cost of equipment: 20,000 Salvage value of equipment: 4,000 Initial investment in net working capital: 2,000
A firm with a 13% WACC is evaluating two projects for this year's capital budget. After-tax cash flows, including yearly depreciation, are as follows: Project M -$6,000 $2,000 $2,000 $2,000 $2,000 $2,000 Project N -$18,000 $5,600 $5,600 $5,600 $5,600 $5,600 Calculate discounted payback for each project. Do not round intermediate calculations. Round your answers to two decimal places. Project M: years Project N: years
Assume the following information for a capital budgeting proposal with a five- year time horizon: Initial investment: Cost of equipment (zero salvage value) Annual revenues and costs: Sales revenues Variable expenses Depreciation expense Fixed out-of-pocket costs The payback period for this investment is closest to: Multiple Choice O O 2.71 years. 5.75 years. 3.54 years. 1.21 years. $ 460,000 $ 300,000 $ 130,000 $ 50,000 $ 40,000
Initial Equipment $65,000 Project Life 3 Years Sales $55,000 Variable Costs $25,000 Fixed Costs $ 10,000 Tax rate 26% Cost of Capital 10% Ending Book Value $10,000 Sales Price at Year 3 $5,000 Net Working Capital $10,000 CALCULATE THE INITIAL COSTS, CALCULATE THE OPERATING CASH FLOW, CALCULATE THE TERMINAL NON OPERATING CASH FLOW, CALCULATE THE NPV. please show your work and formulus for the answers
Jonathon Miller's Co, has provided the following information concerning a capital budgeting project: Investment required in equipment $160,000 Expected life of the project 4 years Salvage value of the equipment $0 Annual sales $360,000 Annual cash operating expenses $290,000 Working capital requirement $20,000 One-time renovation expense in year 3 $20,000 The company’s income tax rate is 30% and its after-tax discount rate is 8%. The working capital would be required immediately and would be released for use elsewhere at the end of the project. The company uses straight-line depreciation on all equipment. Assume cash flows occur at the end of the year except for the initial investments. The company takes income taxes into account in its capital budgeting. The net present value of the entire project is closest to: The following tables have been provided for your reference (using tables provided is optional): Present Value of $1; 1 / (1+r)n Periods 4% 5% 6% 7% 8% 9%…

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