What is the expected operating cash flow for year 2 of a project given the following information. To undertake the project, $321,000 must be spent on new equipment. The equipment has an expected life of 7 years and will be depreciated straight- line over that same period to a book value of 0. New annual sales of $211,000 are expected (expected sales are the same each year). Cost of goods sold are projected to be 44% of sales, Fixed cash operating expenses are $46,000 per year. Tax rate is 20%, in the event EBIT is negative, the firm would have a tax credit based on the 26% tax rate. Oa78385.51 Ob. 65321.26 Oe. 64862.69 Od. 58135.92 Oe, 82304.78 Of. 54216.64

What is the expected operating cash flow for year 2 of a project given the following information. To undertake the project, $321,000 must be spent on new equipment. The equipment has an expected life of 7 years and will be depreciated straight- line over that same period to a book value of 0. New annual sales of $211,000 are expected (expected sales are the same each year). Cost of goods sold are projected to be 44% of sales, Fixed cash operating expenses are $46,000 per year. Tax rate is 20%, in the event EBIT is negative, the firm would have a tax credit based on the 26% tax rate. Oa78385.51 Ob. 65321.26 Oe. 64862.69 Od. 58135.92 Oe, 82304.78 Of. 54216.64

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 project is expected to cost $4 million today and generate a net after-tax cash flow of $600,000 at the end of year 1 and $500,000 at the end of year 2. The net cash flows from year 2 onwards are expected to grow at 6% per annum forever. If the project’s discount rate is 12%, calculate the net present value of the project. Show all calculations.
Given the following, calculate the project's cash flows, NPV, and IRR. Initial investment $325,000 Expected life is 5 years First Year Revenues: 145,000 First-Year Expenses: $65,000 • Growth for revenue and expenses: 4.5 percent per year Straight Line Depreciation over 5 years Salvage Value: $50,000 One-time net working capital investment of $10,000 is required at the start of the project and will be recovered at project end The tax rate is 34 percent The risk-free rate is 4 percent Beta is 1.1 • The expected market return is 8 percent Answer the following: ● ● ● ● ● ● ● ● ● What are the cash flows for each year? What is the NPV? What is the IRR?
A project with a life of 6 years is expected to provide annual sales of $380,000 and costs of $269,000. The project will require an investment in equipment of $670,000, which will be depreciated on a straight-line method over the life of the project. You feel that both sales and costs are accurate to +/−15 percent. The tax rate is 21 percent. What is the annual operating cash flow for the best-case scenario
Rawr Chemicals is considering an investment project. The project requires an initial P3 million outlay for equipment and machinery. Sales are projected to be P1.5 million per year for the next four years. The equipment will be fully depreciated straight-line by the end of year 4. Cost of goods sold and operating expense (not including depreciation) are predicted to be 40% of sales. The equipment can be sold for P400,000 at the end of year 4. Rawr Chemicals also needs to add net working capital of P100,000 immediately. The net working capital will be recovered in full at the end of the fourth year. Assume the tax rate is 40% and the cost of capital is 10%. What is the NPV of this investment?
What is the NPV of a project that costs $38,000 today and is expected to generate annual cash inflows of $9,000 for the next 7 years, followed by a final inflow of $15,000 in year 8. Cost of capital is 7.4%. Round to the nearest cent.
Bluefield Inc. is considering a project that will require an initial investment of $20,000 and is expected to generate future cash flows of $5,000 for years 1 through 3 and $2,500 for years 4 through 6. The project’s payback period is: A. 6 years B. 5 years C. 4 years D. 67 years
Rihanna Company is considering purchasing new equipment for $440,000. It is expected that the equipment will produce net annual cash flows of $55,000 over its 10-year useful life. Annual depreciation will be $44,000. Compute the cash payback period. (Round answer to 1 decimal place, e.g. 10.5.) Cash payback period years
The management of Lanzilotta Corporation is considering a project that would require an investment of $208,000 and would last for 6 years. The annual net operating income from the project would be $104,000, which includes depreciation of $15,000. The scrap value of the project's assets at the end of the project would be $24,000. The cash inflows occur evenly throughout the year. The payback period of the project is closest to (Ignore income taxes.): (Round your answer to 1 decimal place.) Multiple Choice 1.7 years 2.9 years 2.0 years 1.5 years
Maroc Group of Companies (MGC) Ltd is considering an investment in an equipment costing GHȻ80,000. The equipment would attract a 25% annual written down allowance. The operating cash flows are expected to be as follows: Year GHC 1 30,000 2 40,000 3 20,000 The investment would also require additional working capital of GHȻ25,000 in the year of investment which will be recovered at the end of the project. The project is expected to have a useful life of three years after which the investment would be scrapped at a value of GHȻ50,000. The rate of tax on profits is 30%. The company’s cost of capital is 8%. As a financial manager of MGC: Required: 1. Estimate the cost of capital for MGC 2. Assess the viability of the investment using the Net Present Value (NPV) approach 3. Determine the Modified Internal Rate of Return (MIRR)
A 7-year project is expected to provide annual sales of $221,000 with costs of $97,500. The equipment necessary for the project will cost $360,000 and will be depreciated on a straight-line method over the life of the project. You feel that both sales and costs are accurate to +/-15 percent. The tax rate is 21 percent. What is the annual operating cash flow for the worst-case scenario? es Multiple Choice $77,946 $44,504 0 $70,623 $129,329 $49.221
company investment on a machine costing of P40,000 and has a life of 5 years. Yearly cash inflows are as follows: Year 1-P18,000; Year 2-P12,000; Year 3-P10,000; Year 4-P9,000; and Year 5-P6,000. Calculate Net present value at 10% and PI. Will the company accept or reject the project? Complete the table below. 2. A Year Cash flows PV Factor @10% PV 2. 4 Total PV Less-investment Net Present Value PI=
Bha

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