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The management of Niagra National Bank is considering an investment in automatic teller machines. The machines would cost $124,200 and have a useful life of seven years. The bank’s controller has estimated that the automatic teller machines will save the bank $27,000 after taxes during each year of their life (including the depreciation tax shield). The machines will have no salvage value.   Use Appendix A for your reference. (Use appropriate factor(s) from the tables provided.)   Compute the net present value of the proposed investment assuming an after-tax hurdle rate of: (a) 10 percent, (b) 12 percent, and (c) 14 percent. (Negative amounts should be indicated by a minus sign.)

The management of Niagra National Bank is considering an investment in automatic teller machines. The machines would cost $124,200 and have a useful life of seven years. The bank’s controller has estimated that the automatic teller machines will save the bank $27,000 after taxes during each year of their life (including the depreciation tax shield). The machines will have no salvage value.   Use Appendix A for your reference. (Use appropriate factor(s) from the tables provided.)   Compute the net present value of the proposed investment assuming an after-tax hurdle rate of: (a) 10 percent, (b) 12 percent, and (c) 14 percent. (Negative amounts should be indicated by a minus sign.)

Essentials Of Investments
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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The management of Niagra National Bank is considering an investment in automatic teller machines. The machines would cost $124,200 and have a useful life of seven years. The bank’s controller has estimated that the automatic teller machines will save the bank $27,000 after taxes during each year of their life (including the depreciation tax shield). The machines will have no salvage value.

 

Use Appendix A for your reference. (Use appropriate factor(s) from the tables provided.)

 

  1. Compute the net present value of the proposed investment assuming an after-tax hurdle rate of: (a) 10 percent, (b) 12 percent, and (c) 14 percent. (Negative amounts should be indicated by a minus sign.)

 

 

 

 

Future and Present Value Value Tables Table I Future Value of $1.00(1 + " Period 4% 6% 8% 10% 12% 14% 20% 1 1.040 1.060 1.080 1.100 1.120 1.140 1.200 1.082 1.124 1.166 1.210 1.254 1.300 1.440 3 1.125 1.191 1.260 1.331 1.405 1.482 1.728 4 1.170 1.263 1.361 1.464 1.574 1.689 2.074 5 1.217 1.338 1.469 1.611 1.762 1.925 2.488 6. 1.265 1.419 1.587 1.772 1.974 2195 2.986 7 1.316 1.504 1.714 1.949 2.211 2.502 3.583 8. 1.369 1.594 1.851 2.144 2.476 2.853 4.300 9. 1.423 1.690 1.999 2.359 2.773 3.252 5.160 10 1.480 1.791 2.159 2.594 3.106 3.707 6.192 11 1.540 1.898 2.332 2.853 3.479 4.226 7.430 12 1.601 2.012 2.518 3.139 3.896 4.818 8.916 13 1.665 2.133 2.720 3.452 4.364 5.492 10.699 14 1.732 2.261 2.937 3.798 4.887 6.261 12.839 15 1.801 2.397 3.172 4.177 5.474 7.138 15.407 20 2.191 3.207 4.661 6.728 9.646 13.743 38.338 30 3.243 5.744 10.063 17.450 29.960 50.950 237.380 40 4.801 10.286 21.725 45.260 93.051 188.880 1,469.800 Table II Future Value of a Serles of $1.00 Cash Flows (Ordinary Annulty) (1 + n° – 1 Period 4% 6% 8% 10% 12% 14% 20% 1 1.000 1.000 1.000 1.000 1.000 1.000 1.000 2 2.040 2.060 2.080 2.100 2.120 2.140 2.220 3 3.122 3.184 3.246 3.310 3.374 3.440 3.640 4 4.247 4.375 4.506 4.641 4.779 4.921 5.368 5.416 5.637 5.867 6.105 6.353 6.610 7.442 6.633 6.975 7.336 7.716 8.115 8.536 9.930 7 7.898 8.394 8.923 9.487 10.089 10.730 12.916 8 9.214 9.898 10.637 11.436 12.300 13.233 16.499 9. 10.583 11.491 12.488 13.580 14.776 16.085 20.799 10 12.006 13.181 14.487 15.938 17.549 19.337 25.959 11 13.486 14.972 16.646 18.531 20.655 23.045 32.150 12 15.026 16.870 18.977 21.385 24.133 27.271 39.580 13 16.627 18.882 21.495 24.523 28.029 32.089 48.497 14 18.292 21.015 24.215 27.976 32.393 37.581 59.196 15 20.024 23.276 27.152 31.773 37.280 43.842 72.035 20 29.778 36.778 45.762 57.276 75.052 91.025 186.690 30 56.085 79.058 113.283 164.496 241.330 356.790 1,181.900 40 95.026 154.762 259.057 442,597 767.090 1,342.000 7,343.900
Transcribed Image Text:Future and Present Value Value Tables Table I Future Value of $1.00(1 + " Period 4% 6% 8% 10% 12% 14% 20% 1 1.040 1.060 1.080 1.100 1.120 1.140 1.200 1.082 1.124 1.166 1.210 1.254 1.300 1.440 3 1.125 1.191 1.260 1.331 1.405 1.482 1.728 4 1.170 1.263 1.361 1.464 1.574 1.689 2.074 5 1.217 1.338 1.469 1.611 1.762 1.925 2.488 6. 1.265 1.419 1.587 1.772 1.974 2195 2.986 7 1.316 1.504 1.714 1.949 2.211 2.502 3.583 8. 1.369 1.594 1.851 2.144 2.476 2.853 4.300 9. 1.423 1.690 1.999 2.359 2.773 3.252 5.160 10 1.480 1.791 2.159 2.594 3.106 3.707 6.192 11 1.540 1.898 2.332 2.853 3.479 4.226 7.430 12 1.601 2.012 2.518 3.139 3.896 4.818 8.916 13 1.665 2.133 2.720 3.452 4.364 5.492 10.699 14 1.732 2.261 2.937 3.798 4.887 6.261 12.839 15 1.801 2.397 3.172 4.177 5.474 7.138 15.407 20 2.191 3.207 4.661 6.728 9.646 13.743 38.338 30 3.243 5.744 10.063 17.450 29.960 50.950 237.380 40 4.801 10.286 21.725 45.260 93.051 188.880 1,469.800 Table II Future Value of a Serles of $1.00 Cash Flows (Ordinary Annulty) (1 + n° – 1 Period 4% 6% 8% 10% 12% 14% 20% 1 1.000 1.000 1.000 1.000 1.000 1.000 1.000 2 2.040 2.060 2.080 2.100 2.120 2.140 2.220 3 3.122 3.184 3.246 3.310 3.374 3.440 3.640 4 4.247 4.375 4.506 4.641 4.779 4.921 5.368 5.416 5.637 5.867 6.105 6.353 6.610 7.442 6.633 6.975 7.336 7.716 8.115 8.536 9.930 7 7.898 8.394 8.923 9.487 10.089 10.730 12.916 8 9.214 9.898 10.637 11.436 12.300 13.233 16.499 9. 10.583 11.491 12.488 13.580 14.776 16.085 20.799 10 12.006 13.181 14.487 15.938 17.549 19.337 25.959 11 13.486 14.972 16.646 18.531 20.655 23.045 32.150 12 15.026 16.870 18.977 21.385 24.133 27.271 39.580 13 16.627 18.882 21.495 24.523 28.029 32.089 48.497 14 18.292 21.015 24.215 27.976 32.393 37.581 59.196 15 20.024 23.276 27.152 31.773 37.280 43.842 72.035 20 29.778 36.778 45.762 57.276 75.052 91.025 186.690 30 56.085 79.058 113.283 164.496 241.330 356.790 1,181.900 40 95.026 154.762 259.057 442,597 767.090 1,342.000 7,343.900
Period 4% 6% 8% 10% 12% 14% 16% 18% 20% 22% 24% 26% 28% 30% 32% 1 .962 943 926 .909 893 .877 .862 .847 .833 .820 .806 .794 .781 .769 .758 925 890 857 .826 .797 .769 .743 .718 .694 .672 .650 .630 .610 .592 .574 .889 840 .794 .751 .712 .675 .641 .609 .579 .551 .524 .500 .477 455 435 4 855 .792 .735 .683 .636 .592 .552 .516 482 .451 423 397 .373 350 329 822 .747 .681 .621 .567 .519 .476 .437 402 .370 341 315 .291 269 250 6 .790 .705 .630 .564 .507 456 .410 .370 .335 .303 .275 250 227 207 .189 7 .760 .665 583 .513 452 400 .354 .314 279 .249 .222 .198 .178 .159 .143 8 .731 627 .540 467 404 .351 .305 .266 233 .204 .179 .157 .139 .123 .108 .703 .592 .500 424 361 308 263 .225 .194 .167 .144 .125 .108 .094 .082 10 .676 558 463 386 322 270 227 .191 .162 .137 .116 .099 .085 .073 .062 11 .650 527 429 .350 287 237 .195 .162 .135 .112 .094 .079 .066 .056 .047 12 .625 497 397 .319 .257 208 .168 .137 .112 .092 .076 .062 .052 .043 .036 13 .601 469 368 290 229 .182 .145 .116 .093 .075 .061 .050 .040 .033 .027 14 .577 442 340 263 205 .160 .125 .099 078 .062 .049 .039 .032 .025 .021 15 555 417 315 239 .183 .140 .108 .084 .065 .051 .040 .031 .025 020 .016 20 456 312 215 .149 .104 .073 051 .037 .026 019 .014 010 .007 .005 .004 30 308 .174 .099 .067 .033 .020 .012 .007 .004 .003 .002 .001 .001 40 208 .097 046 .022 011 .005 003 .001 .001 Table IV Present Value of Serles of $1.00 Cash Flows 1 Perlod 4% 6% 8% 10% 12% 14% 16% 18% 20% 22% 24% 25% 26% 28% 30% 0.962 0.943 0.926 0.909 0.893 0.877 0.862 0.847 0.833 0.820 0.806 0.800 0.794 0.781 0.769 1.886 1.833 1.783 1.736 1.690 1.647 1.605 1.566 1.528 1.492 1.457 1.440 1.424 1.392 1.361 2.775 2.673 2.577 2.487 2.402 2.322 2.246 2.174 2.106 2.042 1.981 1.952 1.923 1.868 1.816 4 3.630 3.465 3.312 3.170 3.037 2.914 2.798 2.690 2.589 2.494 2.404 2.362 2.320 2.241 2.166 4.452 4.212 3.993 3.791 3.605 3.433 3.274 3.127 2.991 2.864 2.745 2.689 2.635 2.532 2.436 6 5.242 4.917 4.623 4.355 4.111 3.889 3.685 3.498 3.326 3.167 3.020 2.961 2.885 2.759 2.643 7 6.002 5.582 5.206 4.868 4.564 4.288 4.039 3.812 3.605 3.416 3.242 3.161 3.083 2.937 2.802 6.733 6.210 5.747 5.335 4.968 4.639 4.344 4.078 3.837 3.619 3.421 3.329 3.241 3.076 2.925 6. 7.435 6.802 6.247 5.759 5.328 4.946 4.607 4.303 4.031 3.786 3.566 3.463 3.366 3.184 3.019 10 8.111 7.360 6.710 6.145 5.650 5.216 4.833 4.494 4.192 3.923 3.682 3.571 3.465 3.209 3.092 11 8.760 7.887 7.139 6.495 5.938 5.453 5.029 4.656 4.327 4.035 3.776 3.656 3.544 3.335 3.147 12 9.385 8.384 7.536 6.814 6.194 5.660 5.197 4.793 4.439 4.127 3.851 3.725 3.606 3.387 3.190 13 9.986 8.853 7.904 7.103 6.424 5.842 5.342 4.910 4.533 4.203 3.912 3.780 3.656 3.427 3.223 14 10.563 9.295 8.244 7.367 6.628 6.002 5.468 5.008 4.611 4.265 3.962 3.824 3.695 3.459 3.249 15 11.118 9.712 8.559 7.606 6.811 6.142 5.575 5.092 4.675 4.315 4.001 3.859 3.726 3.483 3.268 20 13.590 11.470 9.818 8.514 7.469 6.623 5.929 5.353 4.870 4.460 4.110 3.954 3.808 3.546 3.316 30 17.292 13.765 11.258 9.427 8.055 7.003 6.177 5.517 4.979 4.534 4.160 3.995 3.842 3.569 3.332 40 19.793 15.046 11.925 9.779 8.244 7.105 6.234 5.548 4.997 4.544 4.166 3.999 3.846 3.571 3.333
Transcribed Image Text:Period 4% 6% 8% 10% 12% 14% 16% 18% 20% 22% 24% 26% 28% 30% 32% 1 .962 943 926 .909 893 .877 .862 .847 .833 .820 .806 .794 .781 .769 .758 925 890 857 .826 .797 .769 .743 .718 .694 .672 .650 .630 .610 .592 .574 .889 840 .794 .751 .712 .675 .641 .609 .579 .551 .524 .500 .477 455 435 4 855 .792 .735 .683 .636 .592 .552 .516 482 .451 423 397 .373 350 329 822 .747 .681 .621 .567 .519 .476 .437 402 .370 341 315 .291 269 250 6 .790 .705 .630 .564 .507 456 .410 .370 .335 .303 .275 250 227 207 .189 7 .760 .665 583 .513 452 400 .354 .314 279 .249 .222 .198 .178 .159 .143 8 .731 627 .540 467 404 .351 .305 .266 233 .204 .179 .157 .139 .123 .108 .703 .592 .500 424 361 308 263 .225 .194 .167 .144 .125 .108 .094 .082 10 .676 558 463 386 322 270 227 .191 .162 .137 .116 .099 .085 .073 .062 11 .650 527 429 .350 287 237 .195 .162 .135 .112 .094 .079 .066 .056 .047 12 .625 497 397 .319 .257 208 .168 .137 .112 .092 .076 .062 .052 .043 .036 13 .601 469 368 290 229 .182 .145 .116 .093 .075 .061 .050 .040 .033 .027 14 .577 442 340 263 205 .160 .125 .099 078 .062 .049 .039 .032 .025 .021 15 555 417 315 239 .183 .140 .108 .084 .065 .051 .040 .031 .025 020 .016 20 456 312 215 .149 .104 .073 051 .037 .026 019 .014 010 .007 .005 .004 30 308 .174 .099 .067 .033 .020 .012 .007 .004 .003 .002 .001 .001 40 208 .097 046 .022 011 .005 003 .001 .001 Table IV Present Value of Serles of $1.00 Cash Flows 1 Perlod 4% 6% 8% 10% 12% 14% 16% 18% 20% 22% 24% 25% 26% 28% 30% 0.962 0.943 0.926 0.909 0.893 0.877 0.862 0.847 0.833 0.820 0.806 0.800 0.794 0.781 0.769 1.886 1.833 1.783 1.736 1.690 1.647 1.605 1.566 1.528 1.492 1.457 1.440 1.424 1.392 1.361 2.775 2.673 2.577 2.487 2.402 2.322 2.246 2.174 2.106 2.042 1.981 1.952 1.923 1.868 1.816 4 3.630 3.465 3.312 3.170 3.037 2.914 2.798 2.690 2.589 2.494 2.404 2.362 2.320 2.241 2.166 4.452 4.212 3.993 3.791 3.605 3.433 3.274 3.127 2.991 2.864 2.745 2.689 2.635 2.532 2.436 6 5.242 4.917 4.623 4.355 4.111 3.889 3.685 3.498 3.326 3.167 3.020 2.961 2.885 2.759 2.643 7 6.002 5.582 5.206 4.868 4.564 4.288 4.039 3.812 3.605 3.416 3.242 3.161 3.083 2.937 2.802 6.733 6.210 5.747 5.335 4.968 4.639 4.344 4.078 3.837 3.619 3.421 3.329 3.241 3.076 2.925 6. 7.435 6.802 6.247 5.759 5.328 4.946 4.607 4.303 4.031 3.786 3.566 3.463 3.366 3.184 3.019 10 8.111 7.360 6.710 6.145 5.650 5.216 4.833 4.494 4.192 3.923 3.682 3.571 3.465 3.209 3.092 11 8.760 7.887 7.139 6.495 5.938 5.453 5.029 4.656 4.327 4.035 3.776 3.656 3.544 3.335 3.147 12 9.385 8.384 7.536 6.814 6.194 5.660 5.197 4.793 4.439 4.127 3.851 3.725 3.606 3.387 3.190 13 9.986 8.853 7.904 7.103 6.424 5.842 5.342 4.910 4.533 4.203 3.912 3.780 3.656 3.427 3.223 14 10.563 9.295 8.244 7.367 6.628 6.002 5.468 5.008 4.611 4.265 3.962 3.824 3.695 3.459 3.249 15 11.118 9.712 8.559 7.606 6.811 6.142 5.575 5.092 4.675 4.315 4.001 3.859 3.726 3.483 3.268 20 13.590 11.470 9.818 8.514 7.469 6.623 5.929 5.353 4.870 4.460 4.110 3.954 3.808 3.546 3.316 30 17.292 13.765 11.258 9.427 8.055 7.003 6.177 5.517 4.979 4.534 4.160 3.995 3.842 3.569 3.332 40 19.793 15.046 11.925 9.779 8.244 7.105 6.234 5.548 4.997 4.544 4.166 3.999 3.846 3.571 3.333
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