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:Adam Andler Corp is analyzing an average-risk project, and the following data have been developed. Unit sales will be constant, but the sales price should increase with inflation. Fixed costs will also be constant, but variable costs should rise with
inflation. The project should last for 3 years. This is just one of many projects for the firm, so any losses on this project can be used to offset gains on other firm projects. What is the project's expected NPV? Do not round the intermediate calculations
and round the final answer to the nearest whole number.
WACC or cost of capital
Net investment cost (depreciable basis)
The salvage value of its equipment
No other fixed assets will be acquired for following years
The company will require an increase in net working capital at the
$10,000
beginning
The company will liquidate all working capital at the end of the project -10,000
Units sold (constant through years)
60,000
$30.00
$50,000
$17.00
Average price per unit, Year 1
Fixed operating cost, exclude depreciation (constant through years)
Variable operating cost per unit, Year 1
Variable operating cost and average price per unit increase every year at
inflation rate
MARCS 3-year depreciation rate:
Depreciation rate for year 1
Depreciation rate for year 2
Depreciation rate for year 3
Depreciation rate for year 4
Expected inflation rate per year
Tax rate
O 575.890
Ⓒ 959,404
O 651,736
O 356,985
15.00%
$250,000
$20,000
33.33%
44.45%
14.81%
7.41%
5.00%
35.00%
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