We project unit sales for a new household-use laser-guided cockroach search and destroy system as follows:Year12345Unit Sales99,000111,000134,000140,00093,000The new system will be priced to sell at $455 each.The cockroach eradicator project will require $1,800,000 in net working capital to start, and total net working capital will rise to 15%of the change in sales. The variable cost per unit is $325, and total fixed costs are $2,100,000 per year. The equipment necessary tobegin production will cost a total of $20 million. This equipment is mostly industrial machinery and thus qualifies for CCA at a rate of20%. In five years, this equipment will actually be worth about 20% of its cost.The relevant tax rate is 35%, and the required return is 19%. Based on these preliminary estimates, what is the NPV of the project?

Net Present Value (NPV) is a financial measure used to analyze the profitability of an investment by…

Answered: We project unit sales for a new…

Cornerstones of Cost Management (Cornerstones Series)

4th Edition

ISBN:9781305970663

Author:Don R. Hansen, Maryanne M. Mowen

Publisher:Don R. Hansen, Maryanne M. Mowen

Chapter19: Capital Investment

Section: Chapter Questions

Problem 15E: Gina Ripley, president of Dearing Company, is considering the purchase of a computer-aided...

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Gina Ripley, president of Dearing Company, is considering the purchase of a computer-aided manufacturing system. The annual net cash benefits and savings associated with the system are described as follows: The system will cost 9,000,000 and last 10 years. The companys cost of capital is 12 percent. Required: 1. Calculate the payback period for the system. Assume that the company has a policy of only accepting projects with a payback of five years or less. Would the system be acquired? 2. Calculate the NPV and IRR for the project. Should the system be purchasedeven if it does not meet the payback criterion? 3. The project manager reviewed the projected cash flows and pointed out that two items had been missed. First, the system would have a salvage value, net of any tax effects, of 1,000,000 at the end of 10 years. Second, the increased quality and delivery performance would allow the company to increase its market share by 20 percent. This would produce an additional annual net benefit of 300,000. Recalculate the payback period, NPV, and IRR given this new information. (For the IRR computation, initially ignore salvage value.) Does the decision change? Suppose that the salvage value is only half what is projected. Does this make a difference in the outcome? Does salvage value have any real bearing on the companys decision?
If a copy center is considering the purchase of a new copy machine with an initial investment cost of $150,000 and the center expects an annual net cash flow of $20,000 per year, what is the payback period?
Jasmine Manufacturing is considering a project that will require an initial investment of $52,000 and is expected to generate future cash flows of $10,000 for years 1 through 3, $8,000 for years 4 and 5, and $2,000 for years 6 through 10. What is the payback period for this project?
We project unit sales for a new household-use laser-guided cockroach search and destroy system as follows: Year 1 2 3 4 5 NPV Unit Sales 95,500 107,500 130,500 136,500 89,500 The new system will be priced to sell at $420 each. The cockroach eradicator project will require $1,900,000 in net working capital to start, and total net working capital will rise to 15% of the change in sales. The variable cost per unit is $290, and total fixed costs are $1,400,000 per year. The equipment necessary to begin production will cost a total of $17 million. This equipment is mostly industrial machinery and thus qualifies for CCA at a rate of 20%. In five years, this equipment will actually be worth about 20% of its cost. The relevant tax rate is 35%, and the required return is 18%. Based on these preliminary estimates, what is the NPV of the project? (Enter the answer in dollars. Do not round your intermediate calculations. Round the final answer to 2 decimal places. Omit $ sign in your response.)
We project unit sales for a new household-use laser-guided cockroach search and destroy system as follows: Year 1 2 3 4 5 Unit Sales 99,500 111,500 134,500 140,500 93,500 The new system will be priced to sell at $460 each. The cockroach eradicator project will require $1,900,000 in net working capital to start, and total net working capital will rise to 15% of the change in sales. The variable cost per unit is $330, and total fixed costs are $2,200,000 per year. The equipment necessary to begin production will cost a total of $21 million. This equipment is mostly industrial machinery and thus qualifies for CCA at a rate of 20%. In five years, this equipment will actually be worth about 20% of its cost. The relevant tax rate is 35%, and the required return is 14%. Based on these preliminary estimates, what is the NPV of the project? (Enter the answer in dollars. Do not round your intermediate calculations. Round the final answer to 2 decimal places. NPV =
We project unit sales for a new household-use laser-guided cockroach search and destroy system as follows: Year 1 2 3 4 5 Check my work Unit Sales 101,000 113,000 136,000 142,000 95,000 The new system will be priced to sell at $475 each. The cockroach eradicator project will require $2,200,000 in net working capital to start, and total net working capital will rise to 15% of the change in sales. The variable cost per unit is $345, and total fixed costs are $2,500,000 per year. The equipment necessary to begin production will cost a total of $22 million. This equipment is mostly industrial machinery and thus qualifies for CCA at a rate of 20%. In five years, this equipment will actually be worth about 20% of its cost. The relevant tax rate is 35%, and the required return is 17%. Based on these preliminary estimates, what is the NPV of the project? (Enter the answer in dollars. Do not round your intermediate calculations. Round the final answer to 2 decimal places. Omit $ sign in your…
Management of Sunland Home Furnishings is considering acquiring a new machine that can create customized window treatments. The equipment will cost $266,550 and will generate cash flows of $81,750 over each of the next six years. If the cost of capital is 15 percent, what is the MIRR on this project? - MMR = ? %
We project unit sales for a new household-use laser-guided cockroach search and destroy system as follows: Year 1 2 3 4 5 The new system will be priced to sell at $465 each. The cockroach eradicator project will require $2,000,000 in net working capital to start, and total net working capital will rise to 15% of the change in sales. The variable cost per unit is $335, and total fixed costs are $2,300,000 per year. The equipment necessary to begin production will cost a total of $21 million. This equipment is mostly industrial machinery and thus qualifies for CCA at a rate of 20%. In five years, this equipment will actually be worth about 20% of its cost. NPV Unit Sales 100,000 112,000 135,000 141,000 94,000 The relevant tax rate is 35%, and the required return is 15%. Based on these preliminary estimates, what is the NPV of the project? (Enter the answer in dollars. Do not round your intermediate calculations. Round the final answer to 2 decimal places. Omit $ sign in your response.)…
Please do it correctly. Need the correct answer
Aguilera Acoustics, Inc. (AAI), projects unit sales for a newseven-octave voice emulation implant as follows: Year Unit Sales 1 8300 2 9200 3 10400 4 9800 5 8400 Production of the implants will require GH¢ 150,000 in net working capital to start and additional net working capital investments each year equal to 15 percent of the projected sales for that year. In the final year of the project, net working capital will decline to zero as the project is wound down. In other words, the investment in working capital is to be completely recovered by the end of the project’s life. Total fixed costs are GH¢ 240,000 per year, variable production costs are GH¢ 190 per unit, and the units are priced at GH¢ 345 each. The equipment needed to begin production has an installed cost of GH¢ 2,300,000. Because the implants are intended for professional singers, this equipment depreciated using the straight-line basis. In five years,…
Oasis Entertainment Systems is setting up to manufacture a new line of video game consoles. The cost of the manufacturing equipment is OMR 1750000. Expected cash flows over the next four years are OMR 725000, OMR 850000, OMR 1200000, and OMR 1500000. Given the company's required rate of return of 15 percent, what is the NPV of this project? Select one: a. 3122607.27 OMR b. 4669806.27 OMR c. None of these d. 2919806.27 OMR e. 1169806.27 OMR
Management of Blossom 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 $75,000 for the next seven years. If the appropriate discount rate is 14 percent, what is the NPV for the project? - NPV $?

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