I don't need ai answer accounting questions XYZ Corp is evaluating a new project with the following data. Theequipment has a 5-year tax life but is eligible for 100% bonusdepreciation at t=0. The equipment has no salvage value at projectend, and no additional working capital is needed. The project'soperating life is 8 years with constant revenues and costs. Calculatethe project's Year 3 cash flow.Given:⚫ Equipment cost: $100,000Annual sales revenue: $45,000Annual operating costs: $30,000Tax rate: 30%

Step 1: Definition of Cash FlowCash flow refers to the net amount of cash being transferred into and…

Answered: XYZ Corp is evaluating a new project…

EBK CONTEMPORARY FINANCIAL MANAGEMENT

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter9: Capital Budgeting And Cash Flow Analysis

Section: Chapter Questions

Problem 13P

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Roberts Company is considering an investment in equipment that is capable of producing more efficiently than the current technology. The outlay required is 2,293,200. The equipment is expected to last five years and will have no salvage value. The expected cash flows associated with the project are as follows: Required: 1. Compute the projects payback period. 2. Compute the projects accounting rate of return. 3. Compute the projects net present value, assuming a required rate of return of 10 percent. 4. Compute the projects internal rate of return.
Friedman Company is considering installing a new IT system. The cost of the new system is estimated to be 2,250,000, but it would produce after-tax savings of 450,000 per year in labor costs. The estimated life of the new system is 10 years, with no salvage value expected. Intrigued by the possibility of saving 450,000 per year and having a more reliable information system, the president of Friedman has asked for an analysis of the projects economic viability. All capital projects are required to earn at least the firms cost of capital, which is 12 percent. Required: 1. Calculate the projects internal rate of return. Should the company acquire the new IT system? 2. Suppose that savings are less than claimed. Calculate the minimum annual cash savings that must be realized for the project to earn a rate equal to the firms cost of capital. Comment on the safety margin that exists, if any. 3. Suppose that the life of the IT system is overestimated by two years. Repeat Requirements 1 and 2 under this assumption. Comment on the usefulness of this information.
Falkland, Inc., is considering the purchase of a patent that has a cost of $50,000 and an estimated revenue producing life of 4 years. Falkland has a cost of capital of 8%. The patent is expected to generate the following amounts of annual income and cash flows: A. What is the NPV of the investment? B. What happens if the required rate of return increases?
Consider a project with a 3-year life and no salvage value. The initial cost to set up the project is $100,000. This amount is to be linearly depreciated to zero over the life of the project. The price per unit is $90, variable costs are $72 per unit and fixed costs are $10,000 per year. The project has a required return of 12%. Ignore taxes. 1. How many units must be sold for the project to achieve accounting break-even? 2. How many units must be sold for the project to achieve cash break-even? 3. How many units must be sold for the project to achieve financial break-even? 4. What is the degree of operating leverage at the financial break-even?
You got asked to analyze a 5-year project for your firm. The project produces an annual revenueof $28,500, but requires an annual labor and materials cost of $5,000. To initiate the project yourfirm must invest $20,000. The salvage value of the project is $0 at the end of the 5-year usefullife. Use straight-line depreciation and a 40% income tax rate to compute the after-tax cash flows and the IRR for the ATCF of this project.
We are evaluating a project that costs RM604,000, has an 8-year life, and has no salvagevalue. Assume that depreciation is straight-line to zero over the life of the project. Sales areprojected at 55,000 units per year. Price per unit is RM36, variable cost per unit is RM17, andfixed costs are RM685,000 per year. The tax rate is 21 percent and we require a return of 15percent on this project.(i) Calculate the base-case cash flow and NPV. (ii) Assume the sales figure increases to 56,000 units per year, calculate the sensitivity of NPVto changes in the sales figure?
Consider a project with a 5-year life and no salvage value. The initial cost to set up the project is $100,000. This amount is to be linearly depreciated to zero over the life of the project. The price per unit is $70, variable costs are $40 per unit and fixed costs are $ 40,000 per year. The project has a required return of 14%. Ignore taxes. How many units must be sold per year for the project to achieve financial break - even?
Suppose you are considering an investment project that requires $800.000, has a six-year life, and has a salvage value of $100,000. Sales volume is projected 10 be 65,000 units per year. Price per un it is $63, variable cos! per unit is $42, and fixed costs are $532,000 per year. The depreciation method is a five-year MACRS. 1l1e tax rate is 35% and you ex pect a 20% relurn on this investment. a-Determine the break-even sales volume. b-Calculate the cash flows of the base case over six years and its NPW. c-lf the sales price per unit increases to $400, what is the required break-even volume? d-Suppose the projections given for price, sales volume, variable costs, and fixed costs are all accurate to within ± 15%. What would be the NPW figures of the best-case and worst-case scenarios?
Raghubhai
A 3-year project requires the purchase of a machine (fixed asset) for $6,000 in Year 0. In Year 2, the project is expected to have net income of $2,000 and the depreciation rate is 45%. The tax rate is 35%. There is no interest expense. What is the Operating Cash Flow in Year 2? Enter your answer without the dollar sign and round your final answer to the nearest whole number (nearest dollar).
Giant Machinery Ltd is considering to invest in one of the two following Projects to buy a new equipment. Each project will last 5 years and have no salvage value at the end. The company’s required rate of return for all investment projects is 9%. The cash flows of the projects are provided below. Project 1Cost $175,000 Project 2 Cost $185,000 Future Cash Flows For Project 1 Year 1 Year 2 Year 3 Year 4 Year 5 is 76,000 83,000 67,000 65,000 55,000 respectively. For Project 2 it is 87,000 78,000 69,000 65,000 57,000 for Year 1 Year 2 Year 3 Year 4 Year 5 resp. Required: a) Identify which project should the company accept based on NPV method. (Note: Please round up the result of each calculation of PV to 2 decimal places only for simplification) b) Identify which project should the company accept based on simple pay back method if the payback criteria is maximum 2 years. c) Which project Giant Machinery should choose if two methods are in conflict
Giant Machinery Ltd is considering to invest in one of the two following Projects to buy a new equipment. Each project will last 5 years and have no salvage value at the end. The company’s required rate of return for all investment projects is 9%. The cash flows of the projects are provided below. Project 1 Project 2 Cost $175,000 $185,000 Future Cash Flows Year 1 Year 2 Year 3 Year 4 Year 5 76,000 83,000 67,000 65,000 55,000 87,000 78,000 69,000 65,000 57,000 Required: a) Identify which project should the company accept based on NPV method. (4 marks) (Note: Please round up the result of each calculation of PV to 2 decimal places only for simplification) b) Identify which project should the company accept based on simple pay back method if the payback criteria is maximum 2 years. (4 marks) c) Which project Giant Machinery should choose if two methods are in conflict. (2 marks)

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