### Understanding Investment Projects: The Case of Garida Co.Companies often invest in expansion projects to increase their business earnings. Let’s consider an example with Garida Co., which is contemplating an investment with specific financial details:#### Sales, Costs, and Operating Expenses:| Year | Year 1 | Year 2 | Year 3 | Year 4 ||-------|--------|--------|--------|--------|| **Unit sales** | 3,000 | 3,250 | 3,300 | 3,400 || **Sales price** | $17.25 | $17.33 | $17.45 | $18.24 || **Variable cost per unit** | $8.88 | $8.92 | $9.03 | $9.06 || **Fixed operating costs** | $12,500 | $13,000 | $13,220 | $13,250 |#### Investment Highlights- **Initial Investment**: $20,000 in new equipment.- **Depreciation**: 100% bonus depreciation at time t = 0 under the new tax law, meaning full depreciation at purchase time.- **Salvage Value**: The equipment has no salvage value after four years.- **Tax Rate**: 25%- **Weighted Average Cost of Capital (WACC)**: 11%#### TaskCalculate the net present value (NPV) of the project under the new tax law.#### NPV Calculation Options1. **Under New Tax Law:** - $15,285.36 - $21,972.70 - $19,106.70 - $22,928.042. **Using Straight-Line Depreciation:** - $20,682.47 - $22,480.95 - $17,984.76 - $17,085.52**Directions**: Determine which choices reflect the most accurate NPV by rounding your final answer to two decimal places and selecting the closest match.This exercise helps in understanding how investments are assessed and evaluated within a business framework by analyzing costs, taxes, and their financial impact over time. **Using the straight-line depreciation method will result in the highest NPV for the project.**No other firm would take on this project if Garida turns it down. Which of the following most closely approximates how much Garida should reduce the NPV of this project, assuming it is discovered that this project would reduce one of its division’s net after-tax cash flows by $300 for each year of the four-year project? (*Hint: Round your final answer to two decimal places and choose the value that most closely matches your answer.*)- ○ $930.73- ○ $791.12- ○ $1,023.80- ○ $558.44 Garida spent $2,750 on a marketing study to estimate the number of units that it can sell each year. What should Garida do to take this information into account?- ○ Increase the NPV of the project by $2,750.- ○ Increase the amount of the initial investment by $2,750.- ○ The company does not need to do anything with the cost of the marketing study because the marketing study is a sunk cost.

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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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What is the NPV for the following project if its cost of capital is 12 percent and its initial after-tax cost is R5 000 000 and it is expected to provide after-tax operating cash flows of R1 800 000 in year 1, R1 900 000 in year 2, R1 700 000 in year 3 and (R1 300 000) in year 4? What is the correct answer? A. (R1 494 336) B. R1 494 336 C. R158 011 D. Two of the above
Lopez Industries has identified the following two mutually exclusive capital investment projects: Year Project A Project B 0 -16000 -15500 1 400 12500 2 800 8000 3 13000 800 4 14000 800 What is the IRR for each of these projects? If you apply the IRR decision rule, which project should the company accept? Is this decision necessarily correct?
find The equivalent annual net benefit of this project.
a) the NPV for project "standard" is $19,972,824.09. (round to the nearest cent) The NPV for project "custom" is $ ??? (round to the nearest cent). How do I find the calculation for this?
Mf1. Consider an asset that costs $492,800 and is depreciated straight-line to zero over its 6-year tax life. The asset is to be used in a 2-year project; at the end of the project, the asset can be sold for $61,600. If the relevant tax rate is 22 percent, what is the aftertax cash flow from the sale of this asset?
Project the OCFs for the next three years considering incomes of $165k, $170K and $180 respectively, and a depreciation of $15K, $16K and $18K respectively. Consider a tax of 25%. (Use the following format: "$11.111; $11.111; $11.111) Answer. $65.588;$69.325;$76.800 Then, calculate the NPV (of the three years projected, don't include the current one) if your investment is $150K and the cost of opportunity is 10% (use the following format: $11.111) Answer $24.619 Decide if you invest or not in this project (use the following format: "Yes" or "No") Answer NoI need the process please
A firm has a market value equal to its book value. Currently, the firm has excess cash of $1,800 and other assets of $5,700. Equity is worth $7,500. The firm has 750 shares of stock outstanding and net income of $1,500. The firm has decided to spend all of its excess cash on a share repurchase program. How many shares of stock will be outstanding after the stock repurchase is completed?
You must decide firm which of the proposed projects should be accepted for the upcoming year since only $6 million is available. Which projects should be accepted? Project Cost (millions) NPV(millions) A 3.25 0.80 В 1.75 0.52 C 4.5 0.69 D 3.75 0.95 E 1.25 0.25 F 0.50 0.25
K You have a depreciation expense of $546,000 and a tax rate of 22%. What is your depreciation tax shield? The depreciation tax shield will be $ (Round to the nearest dollar.)
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Hh1.
Novak Skateboards is considering building a new plant. Bob Skerritt, the company's marketing manager, is an enthusiastic supporter of the new plant. Lucy Liu, the company's chief financial officer, is not so sure that the plant is a good idea. Currently, the company purchases its skateboards from foreign manufacturers. The following figures were estimated regarding the construction of a new plant. Cost of plant Annual cash inflows Annual cash outflows $3,920,000 3,920,000 3,469,000 Estimated useful life Salvage value Discount rate 15 years $1,960,000 11% Bob Skerritt believes that these figures understate the true potential value of the plant. He suggests that by manufacturing its own skateboards the company will benefit from a "buy American" patriotism that he believes is common among skateboarders. He also notes that the firm has had numerous quality problems with the skateboards manufactured by its suppliers. He suggests that the inconsistent quality has resulted in lost sales,…

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