The Taylor Mountain Uranium Company currently has annual cash revenues of $1.2 million and annual cash expenses of $700,000. Depreciation amounts to $200,000 per year. These figures are expected to remain constant for the foreseeable future (at least 15 years). The firm's marginal tax rate is 40 percent. A new high-speed processing unit costing $12 million is being considered as a potential investment designed to increase the firm's output capacity. This new piece of equipment will have an estimated usable life of 10 years and a $0 estimated salvage value. If the processing unit is bought, Taylor's annual revenues are expected to increase to $1.6 million and annual expenses (exclusive of depreciation) will increase to $900,000. Annual depreciation will increase to $320,000. Assume that no increase in net working capital will be required as a result of this project. Compute the project's annual net cash flows for the next 10 years, assuming that the new processing unit is purchased. Also compute the net investment (NINV) for this project.

The Taylor Mountain Uranium Company currently has annual cash revenues of $1.2 million and annual cash expenses of $700,000. Depreciation amounts to $200,000 per year. These figures are expected to remain constant for the foreseeable future (at least 15 years). The firm's marginal tax rate is 40 percent. A new high-speed processing unit costing $12 million is being considered as a potential investment designed to increase the firm's output capacity. This new piece of equipment will have an estimated usable life of 10 years and a $0 estimated salvage value. If the processing unit is bought, Taylor's annual revenues are expected to increase to $1.6 million and annual expenses (exclusive of depreciation) will increase to $900,000. Annual depreciation will increase to $320,000. Assume that no increase in net working capital will be required as a result of this project. Compute the project's annual net cash flows for the next 10 years, assuming that the new processing unit is purchased. Also compute the net investment (NINV) for this project.

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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Amalgamated Industries is considering a 4- year project. The project is expected to generate operating cash flows of $11 million, $14 million, $16 million, and $9 million over the four years, respectively. It will require initial capital expenditures of $41 million dollars and an intitial investment in NWC of $24 million. The firm expects to generate a $11 million after tax salvage value from the sale of equipment when the project ends, and it expects to recover 100% of its nwc investments. Assuming the firm requires a return of 10% for projects of this risk level, what is the project's IRR? Question 3 options: 9.59% 9.22% 8.95% 9.41% 9.69%
Amalgamated Industries is considering a 4- year project. The project is expected to generate operating cash flows of $3 million, $16 million, $18 million, and $14 million over the four years, respectively. It will require initial capital expenditures of $35 million dollars and an initial investment in NWC of $6 million. The firm expects to generate a $6 million after tax salvage value from the sale of equipment when the project ends, and it expects to recover 100% of its nw investments. Assuming the firm requires a return of 15% for projects of this risk level, what is the project's IRR? A. 16.16% B. 16.47% C. 15.39% D. 16.00% E. 15.70%
Blue Sky Corporation is trying to decide whether to invest in equipment to manufacture a new product. If the investment project is accepted, sales revenue will increase by $78,000 per year and materials costs will decrease by $47,000 per year. The equipment will cost $244,000 and is depreciable over 14 years using simplified straight line (zero salvage value). The firm has a marginal tax rate of 34%. Calculate the firm's annual cash flows resulting from the new project. ENTER YOUR ANSWER IN THE SPACE PROVIDED. DO NOT ENTER THE DOLLAR SIGN.
The Rodriguez Company is considering an average-risk investment in a mineral water spring project that has an initial after-tax cost of $140,000. The project will produce 800 cases of mineral water per year indefinitely, starting at Year 1. The Year-1 sales price will be $133 per case, and the Year-1 cost per case will be $106. The firm is taxed at a rate of 25%. Both prices and costs are expected to rise after Year 1 at a rate of 4% per year due to inflation. The firm uses only equity, and it has a cost of capital of 15%. Assume that cash flows consist only of after-tax profits because the spring has an indefinite life and will not be depreciated. What is the present value of future cash flows? (Hint: The project is a growing perpetuity, so you must use the constant growth formula to find its NPV.) What is the NPV? Do not round intermediate calculations. Round your answers to the nearest dollar. Negative values, if any, should be indicated by a minus sign. PV of future CFs: $ NPV: $…
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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?
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We are evaluating a project that costs RM604,000, has an 8-year life, and has no salvage value. Assume that depreciation is straight-line to zero over the life of the project. Sales are projected at 55,000 units per year. Price per unit is RM36, variable cost per unit is RM17, and fixed costs are RM685,000 per year. The tax rate is 21 percent and we require a return of 15 percent on this project. (i) Calculate the base-case cash flow and NPV., (ii) Assume the sales figure increases to 56,000 units per year, calculate the sensitivity of NPV to changes in the sales figure?
Disposable Containers Corp. (DCC) is considering a large plant expansion/modernization which will cost $98 million initially and another $62 million at the end of year 3. This project is expected to produce incremental after-tax profits of $29 million, $32 million, $26 million, $42 million, $40 million and $31 million to be received at the end of years 1, 2, 3, 4, 5 and 6 respectively. If the WACC is 9%, what is the project’s NPV? (Start by drawing a timeline.)
[The following information applies to the questions displayed below.] Beacon Company is considering automating its production facility. The initial investment in automation would be $10.31 million, and the equipment has a useful life of 8 years with a residual value of $1,030,000. The company will use straight- line depreciation. Beacon could expect a production increase of 43,000 units per year and a reduction of 20 percent in the labor cost per unit. Current (no automation) 82,000 units Proposed (automation) 125,000 units Production and sales volume Per Unit Per Total Unit Total Sales revenue Variable costs Direct materials Direct labor Variable manufacturing $ 96 $ ? $ 96 $ ? $ 16 $ 16 15 ? 9 9 costs overhead Total variable manufacturing Contribution margin 40 ? $ 56 ? $ 59 ? Fixed manufacturing costs $ 1,240,000 $ 2,330,000 Net operating income. ? ? 5. Recalculate the NPV using a 10 percent discount rate. (Future Value of $1, Present Value of $1, Future Value Annuity of $1, Present…
J.B. Enterprises is considering the purchase of new equipment with a cost of $1,000,000. If the equipment is purchased, the incremental net cash flows are expected to be $300,000 per year for five years. These net cash flows already reflect the of the equipment and the company’s 40% tax rate. However, there are liability risks associated with the use of this product. The board of directors estimates a “cost of worry” of $25,000 per year. Calculate the net present value of this project incorporating the cost of worry if the company’s cost of capital is 10%. a. $42,466 b. $340,909 c. $375,000 d. $61,420

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