What must the pre-tax cost savings be for us to favour the investment? We require an 12% return int This one is a variation on the problem of setting a bid price) (Do not round your intermediate calculations. Round the final answer to 2 decimal places. Omit $ sign in your response) Cost savings $171202 92 O Suppose the device will be worth $77.000 in salvage (before taxes. How does this change your answer? (Do not round wour intermediate calculations. Round the final answer to 2 decimal places. Omit $ sign in your response) Cost savings $1647981 O
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- A proposed cost-saving device has an installed cost of $600,000. It is in Class 8 (CCA rate=20%) for CCA purposes. It will actually function for five years, at which time it will have no value. There are no working capital consequences from the investment, and the tax rate is 35%. a. What must the pre-tax cost savings be for us to favour the investment? We require an 11% return. (Hint: This one is a variation on the problem of setting a bid price.) (Do not round your intermediate calculations. Round the final answer to 2 decimal places. Omit $ sign in your response.) Cost savings 120350.41 b. Suppose the device will be worth $84,000 in salvage (before taxes). How does this change your answer? (Do not round your intermediate calculations. Round the final answer to 2 decimal places. Omit $ sign in your response.) Cost savings $143400.10A proposed cost-saving device has an installed cost of $560,000. It is in Class 8 (CCA rate = 20%) for CCA purposes It will actually function for five years, at which time it will have no value. There are no working capital consequences from the investment, and the tax rate is 35%. a What must the pre-tax cost savings be for us to favour the investment? We require an 12% return. (Hint This one is a variation on the problem of setting a bid price.) (Do not round your intermediate calculations. Round the final answer to 2 decimal pleces. Omit S sign in your response.) Cost savings b. Suppose the device will be worth $80.000 in salvage (before taxes). How does this change your answer? (Do not round your intermediate calculations. Round the final answer to 2 decimal pieces. Omit S sign in your response.) Cost savingsS A proposed cost-saving device has an installed cost of $590,000. It is in Class 8 (CCA rate=20%) for CCA purposes. It will actually function for five years, at which time it will have no value. There are no working capital consequences from the investment, and the tax rate is 35%. a. What must the pre-tax cost savings-pe for us to favour the investment? We require an 12% return. (Hint: This one is a variation on the problem of setting a bid price.) (Do not round your intermediate calculations. Round the final answer to 2 decimal places. Omit $ sign in your response.) Cost savings $122148.97 b. Suppose the device will be worth $83,000 in salvage (before taxes). How does this change your answer? (Do not round your intermediate calculations. Round the final answer to 2 decimal places. Omit $ sign in your response.) Cost savings $
- You can make an investment that will immediately cost $52,000. If you make the investment, your after-tax operating profit will be $13,000 per year for five years. After the five years, the profit will be zero, and the scrap value also will be zero. You will finance the investment with internally generated funds and receive the profit at the end of each year. The net present value equation for this investment is: NPV=$| (Carefully enter your answer as an algebraic expression, using the proper notation in the proper format. Do not use the letter x to denote the multiplication sign.)Your boss asked you to evaluate a project with an infinite life. Sales and costs project to $1,000 and $500 per year, respectively. (Assume sales and costs occur at the end of the year [i.e., profit of $500 at the end of year one]). There is no depreciation and the tax rate is 30 percent. The required rate of return is 10 percent. If the project costs $3,000, what is the NPV?A project requires an initial investment of $6 million and will yield operating cash flows of $1.5 million per year for the next 10 years. At the end of 10 years, the project’s assets can be divested for $350,000. The marginal tax rate is 35%, and the CCA rate is 30%. If the required rate of return is 15%, what is the present value of the CCA tax shields? Select one: a. $1,329,042.73 b. $1,308,432.91 c. $1,288,508.90 d. $1,210,537.92 e. $1,049,551.30
- (Ignore income taxes in this problem.) Your Company is considering an investment in a project that will have a three-year life. The project will provide a 4% internal rate of return and is expected to have a $40,000 cash inflow the first year and a $0 cash inflow in the second year, and $50,000 cash inflow in the third year. What investment is required in the project?An investment has an initial cost of $3.2 million. This investment will be depreciated by $900,000 a year over the 3-year life of the project. Should this project be accepted based on the average accounting rate of return if the required rate is 10.5 percent? Why or why not? Net Income $211.700 186.400 Year 165,500 O Yes; because the AAR is 10.5 percent O Yes; because the AAR is less than 10.5 percent O Yes; because the AAR is greater than 10.5 percent O No; because the AAR is greater than 10.5 percent O No; because the AAR is less than 10.5 percentJBL Inc. is considering a new product that would require an after-tax investment of $1,400,000 at t = 0. If the new product is well received, then the project would produce after-tax cash flows of $ 650,000 at the end of each of the next 3 years (t = 1, 2, 3), but if the market did not like the product, then the cash flows would be only $100,000 per year. There is a 70% probability that the market will be good. JBL Inc. could delay the project for a year while it conducted a test to determine if demand would be strong or weak. The project's cost and expected annual cash flows are the same whether the project is delayed or not; however, the timing of the cash flows would change. (There would be the same number of cash flows-only the cash flows would be extended out one extra year.) The project's WACC is 10%. What is the value of the project after considering the investment timing option? a. $108, 226.89 b. $ 137, 743.32 c. $167, 259.75 d. $196, 776.18 e. $216, 453.79
- A proposed project is expected to generate returns of $50,000 per year for each of the next four years. If the project will cost $145,685 and taxes are ignored, what is the internal rate of the return (IRR) for the proposed project?. O 12% O 16% O 14% O Less than 10% Hi inConsider a hypothetical economy that has NO tax.ABC Ltd. is considering investing in a 2-year project which is expected to generate the followingyear-end cash flows: C1 = $110 million, C2 = $115 million. The yearly discount rate for the projectis 10%. The initial cost of the project is $200 million.(a) Compute the profit and NPV of the project. (b) Based on the answer of part (a), should the project be accepted? Explain.(c) ABC’s cut-off period is 2 years. Compute the PI and Payback of the project. Based on thesetwo methods, should ABC accept the project?(d) Write down the numerical formula for computing the IRR of this project. What is theminimum IRR value that would make this project acceptable? Explain. (e) Given the recommendations based on the four decision rules above, which project shouldABC Ltd. accept? (f) Now suppose that of the $200m initial expenditure, $50m was used for the purchase of amachine that has an estimated economic life of four years. The machine will be…You are evaluating a project that requires an investment of $102 today and garantees a single cash flow of $127 one year from now. You decide to use 100% debt financing, that is, you will borrow $102. The risk-free rate is 5% and the tax rate is 39%. Assume that the investment is fully depreciated at the end of the year, so without leverage you would owe taxes on the difference between the project cash flow and the investment, that is, $25. Calculate the NPV of this investment opportunity using the APV method. (Round to two decimalplaces.) Using your answer to part (1), calculate the WACC of the project. (Round to two decimalplaces.) Verify that you get the same answer using the WACC method to calculate NPV. (Round to two decimalplaces.) Finally, show that flow-to-equity method also correctly gives the NPV of this investment opportunity. (Round to two decimalplaces.)