Sunset Electronics carries an average annual inventory of $5 million. It estimates the cost of capital is 12%, storage costs are 8%, and risk costs are 5%. What is the total cost per year to carry this inventory?
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- Mason, Inc., is considering the purchase of a patent that has a cost of $85000 and an estimated revenue producing lite of 4 years. Mason has a required rate of return that is 12% and a cost of capital of 11%. The patent is expected to generate the following amounts of annual income and cash flows: A. What is the NPV of the investment? B. What happens if the required rate of return increases?A factory costs $810,000. You reckon that it will produce an inflow after operating costs of $171,000 a year for 11 years. a. If the opportunity cost of capital is 7%, what is the net present value of the factory?. The year-end operating and maintenance costs of a certain machine are estimated to be P12,000 the first year and to increase by P2,500 each year during its 4-year life. If capital is worth 12%, determine the equivalent uniform year-end costs.
- A project whose machinery and installation cost $15,000, promises a net stream of savings of $3,000 per year and has an expected life of 6 years. The companies required rate of return is 5%. What is the NPV of the project. What is the internal rate of return?GTO Inc. is considering an investment costing $214,170 that results in net cash flows of $30,000 annually for 11 years. (a) What is the internal rate of return of this investment? (b) The hurdle rate is 9.5%. Should the company invest in this project on the basis of internal rate of return?You are preparing to produce some goods for sale. You will sell them in one year and you will incur costs of $87,000 immediately. If your cost of capital is 6.9%, what is the minimum dollar amount you need to sell the goods for in order for this to be a non-negative NPV?
- An investment of $40,000 today is expected to give rise to annual contribution of $25,000. This is based on selling one product, a volume of 10,000 units, selling price of $12.50 and variable cost of $10. Annual fixed cost of $10,000 will be incurred for the next four years; the discount rate is 10%.Required:(a) Calculate the NPV of this investment.(b) Calculate the sensitivity of your calculation to the following:i. Initial investmentii. Selling price per unitiii. Variable cost per unitiv. Sales volumev. Fixed costsvi. Discount rateThe management of XYZ Co has annual credit sales of $20 million and accounts receivable of $4 million. Working capital is financed by an overdraft at 12% interest per year. Assume 365 days in a year. What is the annual finance cost saving if the management reduces the collection period to 60 days?An investment of P200,000 can be made in a project that will produce a uniform annual revenue of P145,000 for 5 years and then have a salvage value of 10% of the investment. Out-of-pocket costs for operation and maintenance will be P60,000 per year. Taxes and insurance will be 4% of the first cost per year. The company expects capital to earn not less than 22% before income taxes. Is this a desirable investment? What is the payback period of the investment? Compute the rate of return. What is the net annual profit using annual worth method? What is the net present worth of net cash flow? The rate of return is [Select] The net annual profit is [Select] The net present worth of net cash flow is [ Select] Is this a desirable investment? [ Select ] The payback period is [ Select] years.
- You are preparing to produce some goods for sale. You will sell them in one year and you will incur costs of $86,000 immediately. If your cost of capital is 6.6%, what is the minimum dollar amount you need to sell the goods for in order for this to be a non-negative NPV?Assume a machine costs $250,000 and lasts five years before it is replaced. The operating cost is $37,200 a year. Ignore taxes. What is the equivalent annual cost if the required rate of return is 8.5 percent? (Hint: the EAC should account for both investment and annual operating costs) O $124,166.76 O $118,285.43 O $112,404.10 O$106,522.77 $100,641.44Bennett Company has a potential new project that is expected to generate annual revenues of $256,700, with variable costs of $141,600, and fixed costs of $59,500. To finance the new project, the company will need to issue new debt that will have an annual interest expense of $21,500. The annual depreciation is $24,000 and the tax rate is 21 percent. What is the annual operating cash flow?