Unequal Lives Shao Airlines is considering the purchase of tvwo alternative planes. Plane A has an expected life of 5 years, will cost $100 million, and will produce net cash flows of $30 million per year. Plane B has a life of 10 years, will cost $132 million and will produce net cash flows of $25 million per year. Shao plans to serve the route for only 10 years. Inflation in operating costs, airplane costs. and fares are expected to be zero, and the company's cost of capital is 12%. a. By how much would the value of the company increase if it accepted the better project (plane)? Enter your answer millions. For example, an answer of $1.23 million should be entered as 1.23, not 1,230,000. Do not round intermediate calculations. Round your answer to two decimal places. million b. What is the equivalent annual annuity for each plane? Enter your answers in millions. For example, an answer of $1.23 million should be entered as 1.23, not 1,230,000. Do not round intermediate calculations. Round your answers to two decimal places. Plane A: $ million Plane B: $ million

Unequal Lives Shao Airlines is considering the purchase of tvwo alternative planes. Plane A has an expected life of 5 years, will cost $100 million, and will produce net cash flows of $30 million per year. Plane B has a life of 10 years, will cost $132 million and will produce net cash flows of $25 million per year. Shao plans to serve the route for only 10 years. Inflation in operating costs, airplane costs. and fares are expected to be zero, and the company's cost of capital is 12%. a. By how much would the value of the company increase if it accepted the better project (plane)? Enter your answer millions. For example, an answer of $1.23 million should be entered as 1.23, not 1,230,000. Do not round intermediate calculations. Round your answer to two decimal places. million b. What is the equivalent annual annuity for each plane? Enter your answers in millions. For example, an answer of $1.23 million should be entered as 1.23, not 1,230,000. Do not round intermediate calculations. Round your answers to two decimal places. Plane A: $ million Plane B: $ 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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Suppose that Calloway golf would like to capitalize on Phil Michelson winning the Open Championship in 2013 by releasing a new putter. The new product will require new equipment for $403,915.00 that will be depreciated using the 5-year MACRS schedule. The project will run for 2 years with the following forecasted numbers: Putter price Units sold COGS Selling and Administrative Year 1 What is the NPV of the project? $64.95 18,393.00 39.00% of sales 21.00% of sales Year 2 $64.95 10,084.00 39.00% of sales 21.00% of sales Calloway has a 13.00% cost of capital and a 39.00% tax rate. The firm expects to sell the equipment after 2 years for a NSV of $136,159.00.
YOU ARE A FINANCIAL ANALYST FOR A COMPANY THAT IS CONSIDERING A NEW PROJECT. IF THE PROJECT IS ACCEPTED, IT WILL USE A FRACTION OF A STORAGE FACILITY THAT THE COMPANY ALREADY OWNS BUT CURRENTLY DOES NOT USE. THE PROJECT IS EXPECTED TO LAST 10 YEARS, AND THE ANNUAL DISCOUNT RATE IS 10% (COMPOUNDED ANNUALLY). YOU RESEARCH THE POSSIBILITIES, AND FIND THAT THE ENTIRE STORAGE FACILITY CAN BE SOLD FOR €100,000 AND A SMALLER (BUT BIG ENOUGH) FACILITY CAN BE ACQUIRED FOR €40,000. THE BOOK VALUE OF THE EXISTING FACILITY IS €60,000, AND BOTH THE EXISITING AND THE NEW FACILITIES (IF IT IS ACQUIRED) WOULD BE DEPRECIATED STRAIGHT LINE OVER 10 YEARS (DOWN TO A ZERO BOOK VALUE). THE CORPORATE TAX RATE IS 40%. DISCUSS WHAT IS THE OPPORTUNITY COST OF USING THE EXISTING STORAGE CAPACITY?
Target Corporation (TGT) is considering a new delivery system that costs $194,875. Assume a required rate of return of 4.26% and the following cash flow schedule: Year 1: $46,608 .Year 2: $70,559 Year 3: $95,705 Year 4: $11,450 The project's discounted payback period (DPP) is closest to O A. 2.08 years. OB. 2.19 years. OC. 2.31 years. COD. 2.44 years.
Question: Big Steve's, maker of swizzle sticks, is considering the purchase of a new plastic stamping machine. This investment requires an initial outlay of $105,000 and will generate net cash inflows of $19,000 per year for 8 years. a. What is the project's NPV using a discount rate of 8 percent? Should the project be accepted? Why or why not? b. What is the project's NPV using a discount rate of 17 percent? Should the project be accepted? Why or why not? c. What is this project's internal rate of return? Should the project be accepted? Why or why not?
OpenSeas, Inc. is evaluating the purchase of a new cruise ship. The ship will cost $501 million and will operate for 20 years. OpenSeas expects annual cash flows from operating the ship to be $70.7 million and its cost of capital is 12.0%. a. Prepare an NPV profile of the purchase. b. Identify the IRR on the graph. c. Should OpenSeas go ahead with the purchase? d. How far off could OpenSeas's cost of capital estimate be before your purchase decision would change? SITTE a. Prepare an NPV profile of the purchase. To plot the NPV profile, we compute the NPV of the project for various discount rates and plot the curve. The NPV for a discount rate of 2.0% is $ million. (Round to one decimal place.)
Randall's Ales & Porters S.A., is considering expanding into Costa Rica. As an incentive, Costa Rica agrees not to charge the company any taxes. The project has the following estimated data: price = $94 per unit variable costs = $50.76 per unit fixed costs = $7,600 required return = 16 percent initial investment = $11,000 life = three years depreciable life = three years, straight-line. Required: (a)What is the accounting break-even quantity? (Do not round your intermediate calculations.) (Click to select) ♥ (b)What is the cash break-even quantity? (Do not round your intermediate calculations.) (Click to select) ♥ (c) What is the financial break-even quantity? (Do not round your intermediate calculations.) (Click to select) ♥
Management of Sandhill Mints, a confectioner, is considering purchasing a new jelly bean-making machine at a cost of $312,500. They project that the cash flows from this investment will be $113,000 for the next seven years. If the appropriate discount rate is 14 percent, what is the NPV for the project? (Enter negative amounts using negative sign, e.g. -45.25. Do not round discount factors. Round other intermediate calculations and final answer to 0 decimal places, e.g. 1,525.) NPV=
OpenSeas, Inc. is evaluating the purchase of a new cruise ship. The ship will cost $499 million and will operate for 20 years. Open Seas expects annual cash flows from operating the ship to be $70.5 million and its cost of capital is 12.2%. a. Prepare an NPV profile of the purchase. b. Identify the IRR on the graph. c. Should OpenSeas go ahead with the purchase? d. How far off could OpenSeas's cost of capital estimate be before your purchase decision would change? a. Prepare an NPV profile of the purchase. To plot the NPV profile, we compute the NPV of the project for various discount rates and plot the curve. The NPV for a discount rate of 2.0% is $ million. (Round to one decimal place.)
27² Riai Airlines is considering two alternative Planes. Plane A has an expected life of Sures Years, has an after-tax cost of $80 millian, and will produce after-tax cash flows ofst 21 $40 million per year. Plane B has a life of 10 years, has an after-tax cast of $119 million, and will produce after-tax cash flows of 121 $35 million per year. Rim plans to serve the uni route for 10 years. The company's WACC is 8%. If Rini needs to purchase a new Plane A, the after-tux cost will be $90 million, but cash inflows will remain the Should Rini all acquire Plan A or Plane B? Explain your answer, Enter your answers in millions. For example, same. on answer $10, 550,000 should be entered as lo.ss. Do not round intermediate calculations. Round your criswer to two decimal places. 2004200 Plane is the better project and will increase $ - $ the company's value by 5 millions. millions f ex boll 19 E TOUS
KYZ Company is going to purchase an equipment that costs $50,000. Useful life is expected to be 5 years and the required rate of return is 12%, what is the minimum annual cash inflow that the equipment must offer for the investment to be acceptable? (Do not round your PV factors and intermediate calculations. Round your final answer to the nearest dollar.)$17.623$13,870$8,929$12,076

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