Epiphany Industries is considering a new capital budgeting project that will last for three years.Epiphany plans on using a cost of capital of 12% to evaluate this project. Based on extensiveresearch, it has prepared the following incremental cash flow projections:Year13Sales (Revenues in $)Cost of Goods Sold (50% of Sales)Depreciation100,00050,00030,00020,000100,00050,00030,00020,000100,00050,00030,00020,000EBITTaxes (21%)Unlevered Net Income42004200420015,800DepreciationChanges to Working CapitalCapital Expenditures15,80030,000500015,80030,000-10,00030,0005000-90,000Epiphany would like to know how sensitive the project's NPV is to changes in the discountrate. How much can the discount rate vary before the NPV reaches zero?

NPV NPV is a capital budgeting tool to decide on whether the capital project should be accepted or…

Year 1 Sales (Revenues in $) Cost of Goods Sold (50% of Sales) Depreciation EBIT 100,000 50,000 30,000 20,000 100,000 50,000 30,000 20,000 4200 100,000 50,000 30,000 20,000 Taxes (21%) Unlevered Net Income 4200 4200 15,800 Depreciation Changes to Working Capital Capital Expenditures 15,800 30,000 15,800 30,000 -10,000 30,000 5000 5000 -90,000 phany would like to know how sensitive the project's NPV is to changes in the discount . How much can the discount rate vary before the NPV reaches zero?

Year 1 Sales (Revenues in $) Cost of Goods Sold (50% of Sales) Depreciation EBIT 100,000 50,000 30,000 20,000 100,000 50,000 30,000 20,000 4200 100,000 50,000 30,000 20,000 Taxes (21%) Unlevered Net Income 4200 4200 15,800 Depreciation Changes to Working Capital Capital Expenditures 15,800 30,000 15,800 30,000 -10,000 30,000 5000 5000 -90,000 phany would like to know how sensitive the project's NPV is to changes in the discount . How much can the discount rate vary before the NPV reaches zero?

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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ACE Limited has the following results for the 15 months to 31 December 2021: £ Adjusted trading profit, before deduction of capital allowances 1,500,000 Capital allowances claimed: Year to 30 September 2021 312,650 3 months to 31 Dec 2021 40,210 Capital gains/loss Disposal 12 May 2021 (Gain) 15,586 Disposal 6 October 2021 (loss) (12,692) Building society interest: Received 31 December 2020 3,500 Received 31 December 2021 4,000 UK dividend received on 25 November 2021 10,000 Accrued building society interest was £2,000 on 30 September 2020, £4,000 on 30 September 2021 and £2,000 on 31 December 2021. Required: Compute the company’s total corporation tax liability for the 15-month period.
Bauer Industries is an automobile manufacturer. Management is currently evaluating a proposal to build a plant that will manufacture lightweight trucks. Bauer plans to use a cost of capital of 12.3% to evaluate this project. Based on extensive research, it has prepared the following incremental free cash flow projections (in millions of dollars): 1. a. For this base-case scenario, what is the NPV of the plant to manufacture lightweight trucks? b. Based on input from the marketing department, Bauer is uncertain about its revenue forecast. In particular, management would like to examine the sensitivity of the NPV to the revenue assumptions. What is the NPV of this project if revenues are 10% higher than forecast? What is the NPV if revenues are 10% lower than forecast? c. Rather than assuming that cash flows for this project are constant, management would like to explore the sensitivity of its analysis to possible growth in revenues and operating expenses. Specifically, management would…
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Revenues - Cost of Goods Sold - Depreciation =EBIT - Taxes (20%) =Unlevered net income +Depreciation - Additions to Net Working Capital - Capital Expenditures =Free Cash Flow Year 0 OA. by 35% OB. by 41% OC. by 69% O D. by 55% Year 1 500,000 - 300,000 Year 2 500,000 - - 100,000 -100,000 165,000-165,000 235,000 -47,000 235,000 -47,000 Year 3 500,000 -165,000 -100,000 188,000 188,000 100,000 100,000 - 20,000 - 20,000 268,000 268,000 Visby Rides, a livery car company, is considering buying some new luxury cars. After extensive research, they come up with the above estimates of free cash flow from this project. Visby learns that a competitor is thinking of offering similar services, thus reducing Visby's sales. By how much could sales fall before the net present value (NPV) was zero, given that the cost of capital is 8%, and that cost of goods sold is 45% of revenues? 235,000 - 47,000 188,000 100,000 - 20,000 268,000
Net Present Value Method The following data are accumulated by Geddes Company in evaluating the purchase of $158,800 of equipment, having a four-year useful life: Net Income Net Cash FlowYear 1 $44,000 $75,000 Year 2 27,000 58,000 Year 3 13,000 44,000 Year 4 (1,000) 29,000 Present Value of $1 at Compound InterestYear 6% 10% 12% 15% 20%1 0.943 0.909 0.893 0.870 0.8332 0.890 0.826 0.797 0.756 0.6943 0.840 0.751 0.712 0.658 0.5794 0.792 0.683 0.636 0.572 0.4825 0.747 0.621 0.567 0.497 0.4026 0.705 0.564 0.507 0.432 0.3357 0.665 0.513 0.452 0.376 0.2798 0.627 0.467 0.404 0.327 0.2339 0.592 0.424 0.361 0.284 0.19410 0.558 0.386 0.322 0.247 0.162 a. Assuming that the desired rate of return is 10%, determine the net present value for the proposal. Use the table of the present value of $1 presented above. If required, round to the nearest dollar. Present value of net cash flow $fill in the blank 1Amount to be invested $fill in the blank 2Net present value $fill in the blank 3b. Would…
Given: 2021 2020 Net Sales 9,350,000 7,200,000 Cost of Sales Cost of Goods Sold 6,150,000 4,460,000 Factory Depreciation 350,000 325,000 Gross Income 2,850,000 2,415,000 SG&A 2,111,000 1,785,000 SG&A depreciation 75,000 70,000 Net Operating Income (NOI) 664,000 560,000 Other Income & Expenses Extraordinary Gain (Loss) 250,000 Interest Expense 120,000 105,000 Net Profit Before Taxes 544,000 705,000 Income Taxes 190,400 246,750 Net Income 353,600 458,250 Convert the above 2021 GAAP data to cash flow data.
Gross Profit from Operations Tax Exempt Interest Capital gains Capital Loss carryforward Compensation expense Depreciation: Tax=$8,000/ E&P=$6,500 Other expenses Total Expense Book/ Taxable Income (1) Federal Income Tax (21%) Book Income $100,000 10,000 5,000 0 Total Income $115,000 $-12,000 30,000 6,000 10,000 46,000 (2) 69,000 M-1s 0 -10,000 0 -2000 0 2,000 0 2,000 -14,000 (3) Tax Income $100,000 0 5000 -2000 $103,000 30,000 8,000 10,000 48,000 55,000 0 After making your adjustments, what is ABC Corporation's current year E&P? (4) E&P Adjustment 0 0 n/a 0 0 n/a n/a
Capital Investment Analysis: Geddes Company
HOMEWORK-DEPRECIATION/TAXES Initial cost $400,000 $160,000 $30,000 Annual Revenue Annual Expense Recovery Period (expected life) 5 Tax Rate 30% MARR 12% 6. Construct a complete Income Statement using SL 7. Construct an Income Statement using MACRS.
Sales : $250,000Costs : $134,000Depreciation : $10,200Operating expenses : $6,000Interest expenses : $20,700Taxes : $18,420Dividends : $10,600Addition to Retained Earnings : $50,080Long term debt repaid : $9,300New Equity issued : $8,470New fixed assets acquired : $15,000 You are required to:i) Calculate the operating cash flow ii) Calculate the cash flow to creditors iii) Calculate the cash flow to shareholders
how did you get these numbers ? Year 2022: Weighted-Average accumulated expenditure Date Amount Capitalization period Weighted Average Accumulated Expenditures 1-Jan-22 $8,100,000 9/9 $8,100,000 31-Jan-22 $450,000 8/9 $400,000 30-Apr-22 $783,000 5/9 $435,000 31-Aug-22 $1,080,000 1/9 $120,000 Total $10,413,000 $9,055,000
Clearcast Communications Inc. is considering allocating a limited amount of capital investment funds among four proposals. The amount of proposed investment, estimated operating income, and net cash flow for each proposal are as follows: Operating Income Net Cash Flow Investment Year Proposal A: $450,000 $ 30,000 1 $120,000 2 30,000 120,000 3 20,000 110,000 4 10,000 100,000 (30,000) $ 60,000 $ 60,000 40,000 60,000 $510,000 $100,000 Proposal B: $200,000 1 80,000 3 20,000 60,000 4 (10,000) 30,000 (20.000) $ 90,000 20.000 $290,000 (Continued)

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