### 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.

Since you have posted a question with multiple sub-parts, we will solve the first three sub-parts for you. To get the remaining sub-parts please repost the complete question and mention the sub-parts to be solved.Net present value is determined by deducting the initial investment from the current value of cash flows. It is an essential tool for businesses and investors to use when deciding how to allocate resources and where to place their money since it helps them decide whether a project will add value and assist an organization in achieving its financial objectives.The positive NPV suggests that the predicted cash inflows surpass the investment, indicating that the investment is profitable. If it is negative, it indicates that an investment may be unprofitable.Part 1:The net present value is determined by deducting the initial investment from the present value of cash flows.Calculation:Result:Part 2:The net present value is determined by deducting the initial investment from the present value of cash flows.Calculation:Result:Part 3:Since the net present value using the 100% bonus depreciation method is greater than the net present value using straight-line method, the 100% bonus depreciation method will result in the highest NPV of the project.Part 1:Net present value is 19,106.70. Therefore, option C is correct.Part 2:Net present value is 17,984.76. Therefore, option C is correct.Part 3:Using the 100% bonus depreciation method will result in highest net present value.

Answered: Which of the following most closely…

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 price implied for an asset providing $100 in state 1 and $50 in state 2?
REQUIRED Use the information provided below to calculate the following: 5.1 Payback Period of both projects (expressed in years, months and days). 5.2 Accounting Rate of Return (on initial investment) of Project Spik (expressed to two decima places). 5.3 Net Present Value of both projects. 5.4 Internal Rate of Return of Project Spik (expressed to two decimal places). Your answer must include two net present value calculations (using consecutive rates/percentages) and interpolation. INFORMATION Telco Ltd had to choose between purchasing machinery for two projects, Spik and Span, for which the following profits are forecast: Year 1 2 3 4 Spik R70 000 R70 000 R70 000 R70 000 Span R20 000 R60 000 R120 000 R70 000 Each project requires an investment of R800 000. Project Span is expected to have a scrap value of R40 000. The cost of capital is 12%. The straight-line method of depreciation is used. Ignore taxes.
Subject - Acounting
You are considering the following two mutually exclusive projects. The required rate of return is 11.25% for project A and 10.75% for project B. Which project should you accept? YEAR PROJECT A PROJECT B 0 -$48,000 -$126,900 1 $18,400 $69.700 2 $31,300 $80,900 3 $11,700 $0
4. Consider the two projects depicted in Table 2: The net present value (NPV) of project A is ________ TABLE 2 Project Year 0 Year 1 Year 2 Year 3 Year 4 Discount Cash Flow Cash Flow Cash Flow Cash Flow. Cash Flow. Rate A. -100. 40. 70 60 0. 0.11 B -80 50 30 30 30 0.11 5 Consider the two projects depicted in Table 2: The net present value (NPV) of project B is ________.
Piercy, LLC, has identified the following two mutually exclusive projects: Year Cash Flow (A) Cash Flow (B) 0 -$56,000 -$56000 1 32,000 19,400 2 26,000 23,400 3 19,000 28,000 4 13,200 25,400 Over what range of Discount rates would you choose Project A? Project B? (Please list percentages rounded to 2 decimal places. Hint: The answer is not the same as the IRR.) Project A ____________% Project B ____________% At what discount rate would you be indifferent between these two projects? ____________%
Calculate the net present value of the following project for discount rates of 10,20 and 40 percent. Based on the NPVs you obtain, under which discount rates do you accept this project? Show your calculations. Cash Flows ($) Year 1 -7000 Year 2 4000 Year 3 19,000 NPV formula: NPV=sum_(t=0)^(n)(EATCF)/((1+k)^(t)) dution:-
7) Consider the following project: Year Cash Flow 0 – $ 3,024 1 17,172 2 – 36,420 3 34,200 4 – 12,000 Year Cash Flow 0 -3,024 1 17,172 2 -36,420 3 34,200 4 -12,000 a) Determine the IRR (s) for this project. Do not use Excel sheet b) At which rates of return will the project be acceptable?
Suppose you have the following information for a project. Year Before-Tax Income After-Tax Cash Flows Taxes Cash Flows 0 12345 -1000 500 340 244 100 100 -72 -33.6 -10.56 24 24 Calculate the present worth of after-tax cash flows. Use an interest rate of 8%. Round your answer to 2 decimal places.
When comparing two projects with different lives, why do you compute an annuity with an equivalent present value (PV) to the net present value (NPV)? A. so that the projects can be compared on their cost or value created per year B. to reduce the danger that changes in the estimate of the discount rate will lead to choosing the project with a shorter time frame C. so that you can see which project has the greatest net present value (NPV) D. to avoid complications arising from alternating cash inflows and outflows O E. to ensure that cash flows from the project with a longer life that occur after the project with the shorter life has ended are considered
Using the following expected interest payments, cost of debt = 5%, and tax-rate = 21%, calculate the TAX SHIELD. Expected interest year 1 = 50; year 2 = 35; year 3 = 20; year 4 = 10; 5 = 0 Group of answer choices 101.36 158.33 82.85 46.37
You are given the following financial information related to a capital investment project. What is the project's Year 1 Net Cash Flow? Sales revenues Depreciation Other operating costs Interest Exp Tax rate WACC Select one: a. $8,580 b. $8,900 c. $9,350 d. $9,463 e. $9,832 $22,250 $8,000 $12,000 $800 40.0% 12.0%

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