The following table presents sales forecasts for Golden Gelt Giftware. The unit price is $40. The unit cost of the giftware is $25. Year 1 2 3 4 Thereafter Unit Sales 22,000 30,000 14,000 5,000 0 It is expected that net working capital will amount to 20% of sales in the following year. For example, the store will need an initial (Year O) investment in working capital of 0.20 x 22,000 x $40 = $176,000. Plant and equipment necessary to establish the giftware business will require an additional investment of $200,000. This investment will be depreciated straight-line over 3 years. After 4 years, the equipment will have an economic and book value of zero. The firm's tax rate is 30%. The discount rate is 20%. Use the MACRS depreciation schedule. a. What is the net present value of the project? Note: Do not round intermediate calculations. Round your answer to the nearest whole dollar amount. b. By how much does NPV increase if the firm takes immediate 100% bonus depreciation?

The following table presents sales forecasts for Golden Gelt Giftware. The unit price is $40. The unit cost of the giftware is $25. Year 1 2 3 4 Thereafter Unit Sales 22,000 30,000 14,000 5,000 0 It is expected that net working capital will amount to 20% of sales in the following year. For example, the store will need an initial (Year O) investment in working capital of 0.20 x 22,000 x $40 = $176,000. Plant and equipment necessary to establish the giftware business will require an additional investment of $200,000. This investment will be depreciated straight-line over 3 years. After 4 years, the equipment will have an economic and book value of zero. The firm's tax rate is 30%. The discount rate is 20%. Use the MACRS depreciation schedule. a. What is the net present value of the project? Note: Do not round intermediate calculations. Round your answer to the nearest whole dollar amount. b. By how much does NPV increase if the firm takes immediate 100% bonus depreciation?

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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Packaging equipment for Xi Cling Wrap costs $60,000 and is expected to result in end-of-year net savings of $23,000 per year for 3 years. The equipment will have a market value of $10,000 after 3 years. The equipment can be leased for $21,000 per year, payable at the beginning of each year. Xi Cling’s MARR is 10%/yr. Based on an internal rate of return analysis, determine if the packaging equipment should be purchased or leased.
An investment project requires a net investment of $100,000 and is expected to generate annual net cash inflows of $25,000 for 6 years. The firm's cost of capital is 12%. Determine the profitability index for this project.
Assume that next year, management wants the company to earn a minimum profit of $ 500,000. How many units will have to sold to meet this target profit figure?
The selling of a product has been set at $300 per unit , and at that price the company expects to sell 1,000 units per year. The company requires a return of 20% p.a . On its investment of $ 1,250,000 in the product . What is the target cost per unit ?
You are considering a project which will cost $140,000. It is expected to bring in incomes of $45,000 per year for the next 5 years. You company's discount rate is 12%. What is the NPV of this project?
A project requires an up- front investment of $20,000 and provides cost savings of $3000 after two years, and then $3000 each year thereafter. Find the discounted payback period when the MARR = 10%.
NPV. Miglietti Restaurants is looking at a project with the following forecasted sales: first-year sales quantity of 33,000, with an annual growth rate of 4.00% over the next ten years. The sales price per unit will start at $41.00 and will grow at 2.00% per year. The production costs are expected to be 55% of the current year's sales price. The manufacturing equipment to aid this project will have a total cost (including installation) of $2,100,000. It will be depreciated using MACRS, and has a seven-year MACRS life classification. Fixed costs will be $360,000 per year. Miglietti Restaurants has a tax rate of 40%. What is the operating cash flow for this project over these ten years? Find the NPV of the project for Miglietti Restaurants if the manufacturing equipment can be sold for $140,000 at the end of the ten-year project and the cost of capital for this project is 8%. MACRS Fixed Annual Expense Percentages by Recovery Class Year 3-Year…
Aylmer-in-You (AIY) Inc. projects unit sales for a new opera tenor emulation implant as follows: Year Unit Sales 1 101,000 2 115,000 3 125,000 4 145,000 5 90,000 Production of the implants will require $753,000 in net working capital to start and additional net working capital investments each year equal to 15% of the projected sales increase for the following year. (Because sales are expected to fall in Year 5, there is no NWC cash flow occurring for Year 4.) Total fixed costs are $177,000 per year, variable production costs are $309 per unit, and the units are priced at $360 each. The equipment needed to begin production has an installed cost of $10.0 million. Because the implants are intended for professional singers, this equipment is considered industrial machinery and thus falls into Class 8 for tax purposes (20%). In five years, this equipment can be sold for about 20% of its acquisition cost. AIY is in the 40% marginal tax bracket and has a required…
(4) Evaluate the ROI.
A Corporation (HC) is planning to open new restaurant in Karachi. You as consultant has to advice HC for its projected cash flows. After long research, you have following figures for 1st year: Selling price per unit is Rs 500 Units sold will be 100 items per day (Assume 360 days in a year) Variable Cost price per unit is Rs 250. Fixed Cost per year will be 4 million You have predicted 10% annual increment in selling price and units sold, 7% increment in variable cost and 5% increment in fixed cost in following years. Total asset of the company will be 4 million and the company uses MACRS depreciation with rates 33.33%, 44.45%, 14.81% and 7.41% respectively. The projected WACC of the company is 10%, tax rate is 35% and working capital as % of next year’s sale is 20%. Required: Calculate cash flows of the company for 5 years.
Towson Industries is considering an investment of $256,950 that is expected to generate returns of $90,000 per year for each of the next four years. Using the IRR formula in the textbook and the Appendix B PV FV Tables.pdf download, what is the present value factor for this investment? Given the answer above, what is the investment’s internal rate of return? and Use the appropriate EXCEL spreadsheet in the Chapter11 TVOM Examples.xlsx downloadto prove your answer above: Using the appropriate EXCEL spreadsheet, the answer = PLEASE NOTE: All PV Factors will be rounded to three decimal places (i.e. 1.234). Round your IRR answers, in percentage format, to one decimal place (i.e. 12.3%).
The following three investment opportunities are available. The returns for each investment for each year vary, but the first cost of each is $20,000. Based on a future worth analysis, which investment is preferred? MARR is 9%/year.

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