The manager of Stock Division projects the following for next year: Sales $185,000 $60,000 $375,000 Operating income Operating assets The manager can invest in an additional project that would require 40,000 investment in additional assets and would generate s6,000 of additional income. The company's minimum rate of return is 14%. What is the residual income for Stock Division with the additional project? O M00 O ML0 O 00

The manager of Stock Division projects the following for next year: Sales $185,000 $60,000 $375,000 Operating income Operating assets The manager can invest in an additional project that would require 40,000 investment in additional assets and would generate s6,000 of additional income. The company's minimum rate of return is 14%. What is the residual income for Stock Division with the additional project? O M00 O ML0 O 00

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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1. Assume a company with 40% debt and 60% equity capital structure is considering a project that requires initial investment of $1,000,000. The project's net operating cash flow for the first year is $50,000 and it grows at 15%, 12%, and 10% in subsequent three years. After that it grows at a constant 5% annual rate into perpetuity. The company's cost of debt is 8% and its cost of equity is 14%. Its marginal tax rate is 20%. a) Should this project be accepted assuming the company uses the same capital structure to finance it? b) Holding other things the same, what perpetual growth rate after year 4 will result in zero NPV for the project? 2. Ashford Company is considering an acquisition of a transport equipment that costs $250,000. The equipment has estimated economic life of 5 years. If acquired, the equipment depreciates to zero book value under the straight-line depreciation method. Alternatively, Ashford Co can lease the equipment from Sysford, Inc. for annual beginning…
The financial staff of Cairn Communications has identified the following information for the first year of the roll-out of its new proposed service: Projected sales $22 million Operating costs (not including depreciation) $11 million Depreciation $5 million Interest expense $3 million The company faces a 25% tax rate. What is the project's operating cash flow for the first year (t = 1)? Enter your answer in dollars. For example, an answer of $1.2 million should be entered as $1,200,000. Round your answer to the nearest dollar. $
The financial staff of Cairn Communications has identified the following information for the first year of the roll-out of its new proposed service: Projected sales $22 million Operating costs (not including depreciation) $9 million Depreciation $5 million Interest expense $3 million The company faces a 25% tax rate. What is the project's operating cash flow for the first year (t = 1)? Enter your answer in dollars. For example, an answer of $1.2 million should be entered as $1,200,000. Round your answer to the nearest dollar.
NPV. Miglietti Restaurants is looking at a project with the following forecasted sales: first-year sales quantity of 36,000, with an annual growth rate of 4.00% over the next ten years. The sales price per unit will start at $40.00 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, B, and has a seven-year MACRS life classification. Fixed costs will be $350,000 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 $130,000 at the end of the ten-year project and the cost of capital for this project is 8%. Data table What is the operating cash flow for this project in year 1? (Round to the nearest dollar.) MACRS…
1. What is the profitability index of a project that costs $90,000 and returns $30,000 annually for 8 years if the opportunity cost of capital is 9.6%? a.0.64 b.0.80 c.1.76 d.1.05 e.1.26 2. King Corporation is planning a 15-year project with an initial investment of $2,013,000. The project will have $563,000 cash inflows per year in years 1-2; $166,000 cash inflows in years 3-10, and $57,000 cash inflows in years 11-15. Determine the project's internal rate of return (IRR). Using financial calculator a.6.87% b.5.72% c.4.58% d.10.30% e.8.24%
7. Assume a company is going to make an investment of $300,000 in a machine and the following are the cash flows that two different products would bring in years one through four. The company's required rate of return is 12%. Option A Option B Product A Product B $190,000 $150,000 190,000 180,000 60,000 60,000 20,000 70,000 Using the appropriate EXCEL spreadsheet in the Chapter11 NPV IRR Analysis.xlsx Download Chapter11 NPV IRR Analysis.xlsx, answer the following questions: What is the NPV for Option A? What is the NPV for Option B? What is the IRR for Option A? What is the IRR for Option B? PLEASE NOTE #1: The dollar amounts will be with "$" and commas as needed and rounded to two decimal places (i.e. $12,345.67). Round your IRR answers, in percentage format, to two decimal places (i.e. 12.34%). Given the above answers, which project should the…
Revenues generated by a new fad product are forecast as follows: Year Revenues 1 $50,000 2 35,000 3 30,000 4 20,000 Thereafter 0 Expenses are expected to be 40% of revenues, and working capital required in each year is expected to be 20% of revenues in the following year. The product requires an immediate investment of $60,000 in plant and equipment. a. What is the initial investment in the product? Remember working capital. b. If the plant and equipment are depreciated over 4 years to a salvage value of zero using straight-line depreciation, and the firm’s tax rate is 20%, what are the project cash flows in each year? Assume the plant and equipment are worthless at the end of 4 years. c. If the opportunity cost of capital is 10%, what is the project's NPV? d. What is the project IRR?
The proposed expansion of CIV Electronics' plant facilities requires the immediate outlay of $102,000. Expected net returns are given in the following table. Calculate the internal rate of return (IRR) Year 1 Year 2 Year 3 $Nil $24,000 $30,000 Year 4 Year 5 Year 6 The internal rate of return is%. (Round to the nearest tenth as needed.) $53,000 $48,000 $17,000
Revenues generated by a new fad product are forecast as follows: Year 1 2 3 4 Thereafter Revenues $ 40,000 30,000 20,000 5,000 0 Expenses are expected to be 40% of revenues, and working capital required in each year is expected to be 20% of revenues in the following year. The product requires an immediate investment of $49,000 in plant and equipment. Required: a. What is the initial investment in the product? Remember working capital. b. If the plant and equipment are depreciated over 4 years to a salvage value of zero using straight-line depreciation, and the firm's tax rate is 20%, what are the project cash flows in each year? c. If the opportunity cost of capital is 10%, what is project NPV? d. What is project IRR?
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.
Accounting Rate of Return Vanderhoort Company invested $10,370,000 in a new product line. The life cycle of the product is projected to be seven years with the following net income stream: $360,000, $360,000, $600,000, $1,080,000, $1,200,000, $2,520,000, and $1,444,000. Required: Calculate the ARR. Enter your answer as a decimal, do not convert to a percent. Round your answer to two decimal places.
Finnegan Company plans to Invest In a new operating plant that Is expected to cost $500,000. The projected Incremental Income from the Investment Is as follows: Net Income Year After Tax 1 $30,000 $45,000 $50,000 $55,000 $40,000 $20,000 The unadjusted rate of return on the Inltial Investment would be approximately. Multiple Choice 80% 6.0%. 16.7% 48.0%