The Campbell Company is considering adding a robotic paint sprayer to its production line. The sprayer's base price is $920,000, and it would cost another $23,000 to install it. The machine falls into the MACRS 3-year class, and itwould be sold after 3 years for $642,000. The MACRS rates for the first three years are 0.3333, 0.4445, and 0.1481. The machine would require an increase in net working capital (inventory) of $18,000. The sprayer would notchange revenues, but it is expected to save the firm $371,000 per year in before-tax operating costs, mainly labor. Campbell's marginal tax rate is 25%. (Ignore the half-year convention for the straight-line method.) Cashoutflows, if any, should be indicated by a minus sign. Do not round intermediate calculations. Round your answers to the nearest dollar.a. What is the Year-0 net cash flow?$b. What are the net operating cash flows in Years 1, 2, and 3?Year 1:$Year 2:$Year 3:$c. What is the additional Year-3 cash flow (i.e, the after-tax salvage and the return of working capital)?2$d. If the project's cost of capital is 12%, what is the NPV of the project?24Should the machine be purchased?-Select- v

Net present value is the difference between the present value of cash inflows and present value of…

Answered: would be sold after 3 years for…

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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The Lesseig Company has an opportunity to invest in one of two mutually exclusive machines that will produce a product the company will need for the next 8 years. Machine A has an after-tax cost of $9.9 million but will provide after-tax inflows of $4.2 million per year for 4 years. If Machine A were replaced, its after-tax cost would be $11.8 million due to inflation and its after-tax cash inflows would increase to $4.5 million due to production efficiencies, Machine B has an after-tax cost of $13.1 million and will provide after-tax inflows of $3.6 million per year for 8 years. If the WACC is 7%, which machine should be acquired? Explain. Enter your answers in millions. For example, an answer of $10,550,000 should be entered as 10.55. Do not round intermediate calculations. Round your answers to two decimal places. Machine -Select- is the better project and will increase the company's value by $ millions, rather than the s millions created by Machine -Select-.
NUBD Co. is considering a new product that will sell for P100 and has a variable cost of P60. Expected volume is 20,000 units. New equipment costing P1,500,000 and having a five-year useful life and no salvage value is needed, and will be depreciated using the straight-line method. The machine has fixed cash operating costs of P200,000 per year. The firm is in the 40% tax bracket and has cost of capital of 12%. Use 5 decimal places for the PV factors. How many units per year the firm must sell for the investment to earn 12% internal rate of return?
Gluon Incorporated is considering the purchase of a new high pressure glueball. It can purchase the glueball for $150,000 and sell its old low-pressure glueball, which is fully depreciated, for $26,000 The new equipment has a 10-year useful life and will save $34,000 a year in expenses before tax. The opportunity cost of capital is 11%, and the firm's tax rate is 21%. What is the equivalent annual saving from the purchase if Gluon can depreciate 100% of the investment immediately. Note: Do not round intermediate calculations. Round your answer to 2 decimal places. Answer is complete but not entirely correct. Equivalent annual savings $ 16,934.51
Mansukh
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Kinky Copies may buy a high-volume copier. The machine costs $130,000 and this cost can be fully depreciated immediately. Kinky anticipates that the machine actually can be sold in 5 years for $30,000. The machine will save $22,000 a year in labor costs as an after-tax reduction, but will require an increase in working capital, mainly paper supplies, of $11,000. The firm's marginal tax rate is 21%, and the discount rate is 6%. (Assume the net working capital will be recovered at the end of Year 5.) What is the NPV of this project? (Negative amount should be indicated by a minus sign. Do not round intermediate calculations. Round your answer to 2 decimal places)
A new electronic process monitor costs $990,000. This cost could be depreciated at 30 percent per year (Class 10). The monitor would actually be worthless in five years. The new monitor would save $460,000 per year before taxes and operating costs. If we require a 15 percent return, what is the NPV of the purchase? Assume a tax rate of 40 percent. (Do not round intermediate calculations. Round the final answer to 2 decimal places.) NPV
Blue Sky Corporation is trying to decide whether to invest in equipment to manufacture a new product. If the investment project is accepted, sales revenue will increase by $78,000 per year and materials costs will decrease by $47,000 per year. The equipment will cost $244,000 and is depreciable over 14 years using simplified straight line (zero salvage value). The firm has a marginal tax rate of 34%. Calculate the firm's annual cash flows resulting from the new project. ENTER YOUR ANSWER IN THE SPACE PROVIDED. DO NOT ENTER THE DOLLAR SIGN.
A proposed cost-saving device has an installed cost of $700,000. 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 10% 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 b Suppose the device will be worth $98,000 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 S sign in your response.) Cost savings
Dinshaw Company is considering the purchase of a new machine. The invoice price of the machine is $58,027, freight charges are estimated to be $2,910, and installation costs are expected to be $7,320. The annual cost savings are expected to be $14,660 for 11 years. The firm requires a 21% rate of return. Ignore income taxes. What is the internal rate of return on this investment?
Novel Industries purchases a 41.2 million cyclo-converter. The cyclo-converter will be depreciated by 10.30 million per year over 4 years, starting this year. Suppose Nokela's tax rate is 40%. a) a. What impact will the cost of the purchase have on earnings for each of the next 4 years? b) What impact will the cost of the purchase have on the firm's cash flow for the next 4 years?
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