The Hershey Company is planning on releasing a new line of gluten-free candy products New equipment needed to manufacture the candy will cost $3.9 million and will be depreciated by straight-line depreciation over 6 years. In addition, there will be $7 million spent on marketing and promotion of the new candy line in the first year only. It is expected that the new candy line will generate incremental revenue of $6.1 million per year for 6 years with associated production and support costs of $1.5 million per year If Hershey's marginal tax rate is 21%, what is the incremental free cash flow in YEAR 2 of this project? OA. $3.771 million OB. $3 121 million OC. $4.453 million OD. S-1.760 million

The Hershey Company is planning on releasing a new line of gluten-free candy products New equipment needed to manufacture the candy will cost $3.9 million and will be depreciated by straight-line depreciation over 6 years. In addition, there will be $7 million spent on marketing and promotion of the new candy line in the first year only. It is expected that the new candy line will generate incremental revenue of $6.1 million per year for 6 years with associated production and support costs of $1.5 million per year If Hershey's marginal tax rate is 21%, what is the incremental free cash flow in YEAR 2 of this project? OA. $3.771 million OB. $3 121 million OC. $4.453 million OD. S-1.760 million

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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A company is considering the purchase of a new machine for $87,000. Management predicts that the machine can produce sales of $23,200 each year for the next eight years. Expenses are expected to include direct materials, direct labor, and factory overhead totaling $4,350 per year plus depreciation of $10,800 per year. The company's tax rate is 40%. What is the payback period for the new machine? a.4.62 years b.7.00 years c.18.01 years d.10.81 years e.5.57 years
8) CathFoods will release a new range of candies which contain anti-oxidants. New equipment to manufacture the candy will cost $4 million, which will be depreciated by straight-line depreciation over six years. In addition, there will be $5 million spent on promoting the new candy line. It is expected that the range of candies will bring in revenues of $6 million per year for five years with production and support costs of $1.5 million per year. If CathFoods' marginal tax rate is 35%, what are the incremental earnings in the second year of this project? A) $2.492 million B) $2.100 million C) $3.833 million D) $1.342 million Answer: A Explanation: Depreciation = 4/6= $0.66666667 million; earnings before tax $6-$1.5- $0.66666667= $3.83333333 million; earnings after tax-$3.83333333 x 0.65-$2.492 million. Diff: 1 Var: 12 Skill: Analytical AACSB Objective: Analytic Skills
Astor Industries plans to automate its production process. The new equipment will cost $460,000 and will provide net cash inflows in the form of annual cost savings of $110,000 each year for 6 years. At the end of year 6, Astor will spend $50,000 to refurbish the equipment so that it can be used for one more year. The equipment will provide cost savings of $65,000 in year 7 and will have a salvage value of $30,000 at the end of year 7. Astor uses a discount rate of 10% to make capital budgeting decisions. What is the net present value of this project? O $24,195 O $39.585 O $67,785 O $125.685 pts O None of the above
A delivery company is looking at converting their fleet of gasoline vans to electric vehicles. The all electric vans cost $75,000.00 today, minus an electric vehicle tax credit $7,500.00 and the reduced maintenance and fuel cost of $5,000. This brings today's MRC to $62,500.00 for each new electric van. The newer vans are expected to increase future MRP by $12,000.00 each year and have a productive life for five years. At the end of the fifth year, the firm expects to sell the used vans for a salvage value of $30,000.00. This firm is borrowing funds at 6% interest. The table indicates the possible investment for one electric vehicle.
The Lesseig Company has an opportunity to invest in one of two mutually exclusive machines that will produce a product the company will need for the next 8 years. Machine A has an after-tax cost of $9.9 million but will provide after-tax inflows of $4.2 million per year for 4 years. If Machine A were replaced, its after-tax cost would be $11.8 million due to inflation and its after-tax cash inflows would increase to $4.5 million due to production efficiencies, Machine B has an after-tax cost of $13.1 million and will provide after-tax inflows of $3.6 million per year for 8 years. If the WACC is 7%, which machine should be acquired? Explain. Enter your answers in millions. For example, an answer of $10,550,000 should be entered as 10.55. Do not round intermediate calculations. Round your answers to two decimal places. Machine -Select- is the better project and will increase the company's value by $ millions, rather than the s millions created by Machine -Select-.
Carson Trucking is considering wether to expand its regional service center. The exapnsion will require expensiture of $10,000,000 for new service equipment and will generate annual net cash inflows by reducing operating costs $ 2,500,000 per year for each of the next 8 years. In year 8, the firm will also get back a cash flow equal to the salvage value of the equipment, which is valued at $1,000,000. Thus in year 8, the total cash inflow is $3,500,000. Assuming an 11% discount rate, calculate the project's NPV: a. $3,500,000 b. $3,299,233 c. $2,500,000 d. $2,399,233
Bilk.com, an online retailing company, proposes to spend $50 million on servers and other computer equipment for managing its Web site and processing orders. The company will depreciate the equipment over five years to zero. However, the company actually expects that it will be able to sell the equipment for $25 million at the end of five years. This equipment is expected to generate $30 million in sales in the first year and $21 million in cash operating costs in the first year. Both revenue and cash operating costs are expected to grow at an annual rate of 3% throughout the useful life of the equipment. There is no initial working capital requirement. However, the company will need to have a working capital balance at the end of each year equal to 20% of that year’s sales. The working capital can be fully recovered at the end of the project’s life. Bilk.com’s tax rate is 40%, and the cost of capital for this project is 8%. Calculate the cash flows in year 1. a. $2,825,000…
Your firm is contemplating the purchase of a new $410,000 computer-based order entry system. The system will be depreciated straight-line to zero over its five-year life. You will save $125,000 before taxes per year in order processing costs, and you will be able to reduce working capital by $35,000 at the beginning of the project. Working capital will revert back to normal at the end of the project. If the tax rate is 21 percent, what is the IRR for this project?
a company is considering the purchase of a new machine for 480,000. Management predicts that the machine can produce sales of 180,000 each year for the next 10 years. Expenses are expected to include direct materials, direct labor, and factory overhead totaling 120,000 per year including depreciation of 30,000 per year. The company's tax rate is 40%. What is the payback period for the new machine?
Stepwise
The Elite Car Rental Corporation is contemplating expanding its short-term rental fleet by 30 automobiles at a cost of $900,000. It expects to keep the autos for only two years and to sell them at the end of that period for 60 percent, on average, of what they cost. The plan is to generate $21,000 of incremental revenue per additional auto in each year of operation. The controller estimates that other costs will amount to 20 cents per kilometre on an average of 40,000 kilometres per car per year. She also estimates that the new business will require an investment of $10,000 in additional working capital. The firm is in a 30 percent tax bracket and uses 12 percent as a cost of capital a. Calculate the NPV (Do not round the intermediate calculations. Round the final answer to the nearest whole dollar. Negative answer should be indicated by a minus sign. Omit $ sign in your response.) b. Should Elite purchase the automobiles? O a. a)NPV = $82,286 ± 0.1% and b)NO O b. a)NPV = -$72,386 ±…
Steele's Enterprises has purchased a new machine tool which will allow the company to improve the efficiency of its operations. On an annual basis, the machine will produce 19,000 units with an expected selling price of $23, prime costs of $10 per unit, and a fixed cost allocation of $2 per unit. Annual depreciation on the machine is $13,000, and the tax rate of the company is 32%. What is the annual cash flow generated from the new machine? A. $146,280 B. $159,120 C. $172,120 D. $133,280

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