Tiger Towers, Inc. is considering an expansion of their existing business, student apartments. The new project will be built on some vacant land that the firm has just contractedto buy. The land cost $1,000,000 and the payment is due today. Construction of a 20-unit office building will cost $3 million; this expense will be depreciated straight-line over30 years to zero salvage value; the pretax value of the land and building in year 30 will be $18,000,000. The $3,000,000 construction cost is to be paid today. The project willnot change the risk level of the firm. The firm will lease 20 office suites at $20,000 per suite per year; payment is due at the start of the year; occupancy will begin in one year.Variable cost is $3,500 per suite. Fixed costs, excluding depreciation, are $75,000 per year. The project will require a $10,000 investment in net working capital.rdebt = 10.0%WACC = 11.20% Drasset = 15.0% tax rate = 34%requity = 24.9% rfree = 2%What is the unlevered after-tax incremental cash flow for year 30?Multiple Choice$12,332,300$12,225,390$12,432,300= 3$12,485,000

Here,Value of Land $ 1,000,000.00No.of Office Suites20Revenue per Suites $…

Answered: Tiger Towers, Inc. is considering an…

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 private gym is looking at a new set of sports equipment with an installed cost of $465,000. This cost will be depreciated straight-line to zero over the project's five-year life, at the end of which the sports equipment can be scrapped for (TIP: "scrapped for" = sold for) $61,000. The sports equipment will save the gym $143,000 per year in pretax operating costs, and the equipment requires an initial investment in net working capital of $27,000. If the tax rate is 22 percent and the discount rate is 10 percent, what is the NPV of this project? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.) NPV
Market Top Investors, Incorporated, is considering the purchase of a $345,000 computer with an economic life of five years. The computer will be fully depreciated over five years using the straight-line method, at which time it will be worth $78,000. The computer will replace two office employees whose combined annual salaries are $89,000. The machine will also immediately lower the firm’s required net working capital by $78,000. This amount of net working capital will need to be replaced once the machine is sold. The corporate tax rate is 23 percent. The appropriate discount rate is 11 percent. Calculate the NPV of this project. (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.)
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Benford Inc. is planning to open a new sporting goods store in a suburban mall. Benford will lease the needed space in the mall. Equipment and fixtures for the store will cost $400,000 and be depreciated over a 5-year period on a straight-line basis to $0. The new store will require Benford to increase its net working capital by $400,000 at time 0. First-year sales are expected to be $1.4 million and to increase at an annual rate of 8 percent over the expected 10-year life of the store. Operating expenses (including lease payments and excluding depreciation) are projected to be $800,000 during the first year and increase at a 6 percent annual rate. The salvage value of the store’s equipment and fixtures is anticipated to be $19,000 at the end of 10 years. Benford’s marginal tax rate is 40 percent. Round your answers to the nearest dollar. Compute the net investment required for Benford. $ Compute the annual net cash flows for the 10-year projected life of the store. Year NCF…
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Pierre’s Hair Salon is considering opening a new location in French Lick, California. The cost of building a new salon is $284,000. A new salon will normally generate annual revenues of $60,490, with annual expenses (including depreciation) of $40,800. At the end of 15 years the salon will have a salvage value of $74,000.Calculate the annual rate of return on the project.
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Sheridan's Hair Salon is considering opening a new location in French Lick, California. The cost of building a new salon is $261,000. A new salon will normally generate annual revenues of $63,650, with annual expenses (including depreciation) of $40,200. At the end of 15 years, the salon will have a salvage value of $74,000. Calculate the annual rate of return on the project. Annual rate of return eTextbook and Media Save for Later % Attempts: 0 of 7 used Submit Answer

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