The following table presents sales forecasts for Golden Gelt Giftware. The unit price is $40. The unit cost of the giftware is $25.| Year | Unit Sales ||------|------------|| 1 | 22,000 || 2 | 30,000 || 3 | 14,000 || 4 | 5,000 || Thereafter | 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 0) investment in working capital of 0.20 × 22,000 × $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. The firm’s tax rate is 30%. The discount rate is 20%.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?- **a. Net present value**: [Answer space]- **b. Increase in NPV**: [Answer space]

NPV is also known as Net Present Value. It is a capital budgeting technique which helps in decision…

Answered: The following table presents sales…

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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Solve the following three independent scenarios: A grocery store is considering the purchase of a new refrigeration unit with an initial investment of $412,000, and the store expects a return of $100,000 in year one, $72,000 in years two and three, $65,000 in years four and five, and $38,000 in year six and beyond, what is the payback period? Payback period years. Round your Payback Period (PB) answer to two decimal places (i.e. 12.34). An auto repair company needs a new machine that will check for defective sensors. The machine has an initial investment of $224,000. Incremental revenues, including cost savings, are $120,000, and incremental expenses, including depreciation, are $50,000. There is no salvage value. What is the accounting rate of return (ARR)? Accounting Rate of Return (ARR) = Round your ARR answer, in percentage format, to two decimal places (i.e. 12.34%).
The following table presents sales forecasts for Golden Gelt Giftware. The unit price is $40. The unit cost of the giftware is $25. Year Unit Sales 1 22,000 2 30,000 3 14,000 4 5,000 Thereafter 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 0) investment in working capital of 0.20 × 22,000 × $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 using MACRS and a 3-year life. 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? (Do not round intermediate calculations. Round your answer to the nearest whole dollar amount.)
A company is analyzing a proposed 3-year project using standard sensitivity analysis. The company expects to sell 15,000 units, \pm 5 percent. The expected variable cost per unit is $8 and the expected fixed costs are $ 40,000. The fixed and variable cost estimates are considered accurate within a \pm 7 percent range. The sales price is estimated at $15 a unit, \pm 6 percent. The project requires an initial investment of $120,000 for equipment that will be depreciated using the straight-line method to zero over the project's life. The equipment can be sold for $30,000 at the end of the project. The project requires $12,000 in net working capital for the three years but will be fully recovered when the project closes. The discount rate is 12.8 percent and tax rate is 20 percent. What is the net present value for the optimistic scenario? $92,058.28 $94, 075.71 $ 96,093.14 $98,110.57 $100, 128.00
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.
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?
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.
An investor is setting up a fund which requires 18 years of contributions. The investor pays £200 per month for 15 years. After 15 years, the payments increase by £10 for the subsequent 3 years. All payments are made in arrears, i.e at the end of the period. The effective annual rate i = 2%. What is the value of the fund after 18 years? £ 数字 Enter an answer correct to 2 decimal places.
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 company estimates that a project with an initial investment of -$25 will produce ten positive cash flows of $4.3 a year at the end of each of the next 10 years. The project's cost of capital is 11%. One year from now, there is a 40% chance that the product demand will be low, in which case the yearly cash flows will be only $2.00. One year from now, there is 60% chance that the product demand will be higher, and the yearly cash flows will be $4.8. Should the company exercise investment timing option and wait a year before proceeding? Prove numerically.
A firm is considering a new inventory system that will cost $120,000. The system is expected to generate positive cash flows over the next four years in the amounts of $35,000 in year 1, $55,000 in year 2, $65,000 in year 3, and $40,000 in year 4. The firm’s required rate of return is 9%. What is the payback period of this project? 1.95 years 2.46 years 2.99 years 3.10 years Based on the information from Question 47. What is the net present value (NPV) of the project? $28,830.29 $30,929.26 $36,931.43 $39,905.28 Based on the information from Question 47, what is the internal rate of return (IRR) of this project? 14.03% 17.56% 19.26% 21.78% Based on the information from Question 47, what is the profitability index (PI) of this project? 0.87 1.11 1.31 1.83.

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