You are asked to evaluate the following project for a corporation profitable ongoing operations. The required investment on January 1 of this year is $29,000. The firm will depreciate the investment at a CCA rate of 20 percent. The firm is in the 40 percent tax bracket. The price of the product on January 1 year 1 is $104 per unit. That price will stay constant in real terms. Labour costs is $14.00 per hour on January 1 year 1. Labour costs will increase by 1 percent per year in real terms after year 1. Energy costs will be $7.20 per physical unit on January 1 year 1; energy cost will increase at 2.5 percent per year in real terms after year 1. The inflation rate is 4.1 percent. The company sells all of its production in the year produced; revenue is received and costs are paid at year-end: Physical production, in units Labour input, in hours Energy input, physical units Year 1 150 1,080 180 Year 2 Year 3 300 1,080 180 350 1,080 180 Year 4 150 1,080 180 The risk-free nominal discount rate is 7.5 percent. The real discount rate for costs and revenues is 4.5 percent. Calculate the NPV of this project. (Do not round intermediate calculations. Round the answer to 2 decimal places. Negative amount should be indicated by a minus sign. Omit $ sign in your response.) Net present value $
You are asked to evaluate the following project for a corporation profitable ongoing operations. The required investment on January 1 of this year is $29,000. The firm will depreciate the investment at a CCA rate of 20 percent. The firm is in the 40 percent tax bracket. The price of the product on January 1 year 1 is $104 per unit. That price will stay constant in real terms. Labour costs is $14.00 per hour on January 1 year 1. Labour costs will increase by 1 percent per year in real terms after year 1. Energy costs will be $7.20 per physical unit on January 1 year 1; energy cost will increase at 2.5 percent per year in real terms after year 1. The inflation rate is 4.1 percent. The company sells all of its production in the year produced; revenue is received and costs are paid at year-end: Physical production, in units Labour input, in hours Energy input, physical units Year 1 150 1,080 180 Year 2 Year 3 300 1,080 180 350 1,080 180 Year 4 150 1,080 180 The risk-free nominal discount rate is 7.5 percent. The real discount rate for costs and revenues is 4.5 percent. Calculate the NPV of this project. (Do not round intermediate calculations. Round the answer to 2 decimal places. Negative amount should be indicated by a minus sign. Omit $ sign in your response.) Net present value $
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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Transcribed Image Text:You are asked to evaluate the following project for a corporation profitable ongoing operations. The
required investment on January 1 of this year is $29,000. The firm will depreciate the investment at a CCA
rate of 20 percent. The firm is in the 40 percent tax bracket.
The price of the product on January 1 year 1 is $104 per unit. That price will stay constant in real terms.
Labour costs is $14.00 per hour on January 1 year 1. Labour costs will increase by 1 percent per year in real
terms after year 1. Energy costs will be $7.20 per physical unit on January 1 year 1; energy cost will
increase at 2.5 percent per year in real terms after year 1. The inflation rate is 4.1 percent. The company
sells all of its production in the year produced; revenue is received and costs are paid at year-end:
Physical production, in units
Labour input, in hours
Energy input, physical units
Year 1
150
1,080
180
Year 2
300
1,080
180
Year 3
350
1,080
180
Year 4
150
1,080
180
The risk-free nominal discount rate is 7.5 percent. The real discount rate for costs and revenues is 4.5
percent. Calculate the NPV of this project. (Do not round intermediate calculations. Round the answer to
2 decimal places. Negative amount should be indicated by a minus sign. Omit $ sign in your response.)
Net present value
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