SummerTyme Inc is considering a new three year expansion project that requires an initial fixed asset investment of $3.9 million. The fixed asset will be depreciated straight-line to zero over its three-year life, after which time it will be worthless. The project is estimated to generate $2,650,000 in annual sales, with costs of $840,000. The tax rate is 35%. The discount rate is 12%. 3. What is the OCF each year for this project? Assuming the required return on this project is 12%, what is the project's NPV? What is the project's IRR? Should you accept or reject this project? Suppose the project requires an initial investment in net working capital of $300,000, and the fixed asset will have a market value of $210,000 at the end of the project. What is the project's year 0 net cash flow? Year 1? Year 2? Year 3? What is the new NPV? а. b. с. d. Discuss how sunk costs, opportunity costs, side effects, financing costs, and taxes should be treated in capital budgeting analysis and why. Limit your answer to two sentences for each. е.
SummerTyme Inc is considering a new three year expansion project that requires an initial fixed asset investment of $3.9 million. The fixed asset will be depreciated straight-line to zero over its three-year life, after which time it will be worthless. The project is estimated to generate $2,650,000 in annual sales, with costs of $840,000. The tax rate is 35%. The discount rate is 12%. 3. What is the OCF each year for this project? Assuming the required return on this project is 12%, what is the project's NPV? What is the project's IRR? Should you accept or reject this project? Suppose the project requires an initial investment in net working capital of $300,000, and the fixed asset will have a market value of $210,000 at the end of the project. What is the project's year 0 net cash flow? Year 1? Year 2? Year 3? What is the new NPV? а. b. с. d. Discuss how sunk costs, opportunity costs, side effects, financing costs, and taxes should be treated in capital budgeting analysis and why. Limit your answer to two sentences for each. е.
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
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Transcribed Image Text:SummerTyme Inc is considering a new three year expansion project that requires an initial fixed asset
investment of $3.9 million. The fixed asset will be depreciated straight-line to zero over its three-year life,
after which time it will be worthless. The project is estimated to generate $2,650,000 in annual sales, with
costs of $840,000. The tax rate is 35%. The discount rate is 12%.
3.
What is the OCF each year for this project?
Assuming the required return on this project is 12%, what is the project's NPV?
What is the project's IRR? Should you accept or reject this project?
Suppose the project requires an initial investment in net working capital of $300,000, and the fixed asset will
have a market value of $210,000 at the end of the project. What is the project's year 0 net cash flow? Year
1? Year 2? Year 3? What is the new NPV?
а.
b.
с.
d.
Discuss how sunk costs, opportunity costs, side effects, financing costs, and taxes should be treated in capital
budgeting analysis and why. Limit your answer to two sentences for each.
е.
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