You are considering opening a new restaurant in the Texas Burgers chain. The new restaurant will have annualrevenue of $328,200 and operating expenses of $164,100. The annual depreciation and amortization for theassets used in the restaurant will equal $54,700. An annual capital expenditure of $11,000 will be required tooffset wear and tear on the assets used in the restaurant, but no additions to working capital will be required. Themarginal tax rate will be 30 percent.Calculate the incremental annual after-tax free cash flow for the project.Incremental annual after-tax free cash flow$

The annual revenue is $328,200. The operating expenses are $164,100. The annual depreciation is…

Answered: You are considering opening a new…

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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Similar questions

Daily Enterprises is purchasing a $10.45 million machine. It will cost $64,247.00 to transport and install the machine. The machine has a depreciable life of five years using the straight-line depreciation and will have no salvage value. The machine will generate incremental revenues of $4.13 million per year along with incremental costs of $1.50 million per year. Daily's marginal tax rate is 34.00%. The cost of capital for the firm is 15.00%. (answer in dollars..so convert millions to dollars) The project will run for 5 years. What is the NPV of the project at the current cost of capital?
The city council is considering a proposal about purchasing a new landfill site. Both the current landfill and new landfill would be usable for the next 10 years. The purchase price is $279,000 and the preparatory work will cost $77,800. It is estimated that the new landfill will cost $51,000 less per year to operate than the current landfill. Assume a hurdle rate of 8%. Ignore tax impacts. Required: Calculate the net present value of the new landfill. Should the city council approve the project on financial grounds? Calculate the internal rate of return for the new landfill. Should the city council approve the project on financial grounds?
Benford Inc. is planning to open a new sporting goods store in a suburban mall. Benford will lease the needed space in the mall. Equipment and fixtures for the store will cost $450,000 and be depreciated to $0 over a 5-year period on a straight-line basis. The new store will require Benford to increase its net working capital by $450,000 at time 0.First-year sales are expected to be $1.05 million and to increase at an annual rate of 8 percent over the expected 10-year life of the store. Operating expenses (including lease payments but excluding depreciation) are projected to be $850,000 during the first year and to increase at a 7 percent annual rate. The salvage value of the store’s equipment and fixtures is anticipated to be $13,000 at the end of 10 years. Benford’s marginal tax rate is 40 percent. Calculate the store’s net present value, using an 18 percent required return. Use Table II to answer the question. Round your answer to the nearest dollar.$ Should Benford accept the…
Tasty Bakery Co. is considering a new product line. In order to manufacture the new product, the company must purchase $3 million in capital assets with expected economic life of 6 years and no salvage value. Annual pre-tax cash flows are expected to equal to $800,000 and Tasty Bakery's discount rate is 10%. Income tax rate is 30% Should this project be undertaken? Why or why not?
The management of Origami Company, a wholesale distributor of beachwear products, is considering purchasing a $30,000 machine that would reduce operating costs in its warehouse by $5,000 per year. At the end of the machine's eight-year useful life, it will have no scrap value. The company's required rate of return is 11%. (Ignore income taxes.) Required: 1. Determine the net present value of the investment in the machine. (Hint: Use Microsoft Excel to calculate the discount factor(s).) (Do not round intermediate calculations and round your final answer to the nearest dollar amount. Negative amount should be indicated by a minus sign.) Net present value 2. What is the difference between the total undiscounted cash inflows and cash outflows over the entire life of the machine? Net cash flow
Lobster Seafood Corp. is planning to build a new shipping depot. The initial cost of the investment is $1.18 million. Efficiencies from the new depot are expected to generate an annual after-tax cost reduction of $105,000 forever. The corporation has a total value of $65 million and has outstanding debt of $45 million. What is the NPV of the project if the firm has an aftertax cost of debt of 5.8 percent and a cost equity of 12.6 percent? $244,843 $150,409 $480,584 $67,715
Arnold Inc. is considering a new project that requires use of an existing warehouse, which the firm acquired three years ago for $1 million and which it currently rents out for $121,000. Rental rates are not expected to change going forward. In addition to using the warehouse, the project requires an upfront investment into machines and other equipment of $1.6 million. This investment can be fully depreciated straight-line over the next 10 years for tax purposes. However, Arnold Inc. expects to terminate the project at the end of eight years and to sell the machines and equipment for $471,000. Finally, the project requires an initial investment into net working capital equal to 10% of predicted first-year sales. Subsequently, net working capital is 10% of the predicted sales over the following year. Sales of protein bars are expected to be $4.6 million in the first year and to stay constant for eight years. Total manufacturing costs and operating expenses (excluding depreciation) are…
You are considering a new product line for your business. The new product line will require investment of $3,000,000 in new equipment. The equipment will be trucked to your facility at a cost of $25,000 and will require another $250,000 to modify that equipment for use in your facility. The new product line will require an increase in inventory of $200,000, an increase in accounts receivable of $100,000, but you believe you will be able to get suppliers to offer good credit terms which should increase accounts payable by $250,000, and you will obtain a short term bank loan, increasing notes payable by $25,000. The equipment falls into the 3- year MACRS class (rates of 33%, 45%, 15%, and 7% in years 1-4, respectively). You expect to operate the new product line for only three years and then shut down operations. The salvage value of the equipment at time three is expected to be $385,000. The new product line is expected to lead to sales of $1.4 million the first year with inflation of…
Your firm needs a computerized machine tool lathe which costs $47,000 and requires $11,700 in maintenance for each year of its 3- year life. After three years, this machine will be replaced. The machine falls into the MACRS 3-year class life category, and neither bonus depreciation nor Section 179 expensing can be used. Assume a tax rate of 21 percent and a discount rate of 11 percent. Calculate the depreciation tax shield for this project in year 3. Note: Round your answer to 2 decimal places. Answer is complete but not entirely correct. 4,286.00 Depreciation tax shieldi
Moxabl Inc. plans to buy land and build an assembly line for its expansion. The anticipated total cost of the land and structures is $0.65 million. The founder-owners of the company are reluctant to borrow money and prefer to set aside savings from profits to cover the cost. Management believes that the firm can set aside $650,000 a month to accumulate the capital necessary for this investment. The firm can earn 8 percent compounded monthly on the funds it saves. How long will it take for the firm to have sufficient capital to invest in this expansion? Assume that the cost of expansion remains constant over time.
Daily Enterprises is purchasing a $10.41 million machine. It will cost $65,217.00 to transport and install the machine. The machine has a depreciable life of five years using the straight-line depreciation and will have no salvage value. The machine will generate incremental revenues of $4.47 million per year along with incremental costs of $1.23 million per year. Daily's marginal tax rate is 35.00%. The cost of capital for the firm is 11.00%. (answer in dollars..so convert millions to dollars) The project will run for 5 years. What is the NPV of the project at the current cost of capital?
The Lumber Yard is considering adding a new product line that is expected to increase annual sales by $277,000 and expenses by $184,000. The project will require $93,000 in fixed assets that will be depreciated using the straight-line method to a zero book value over the 6-year life of the project. The company has a marginal tax rate of 21 percent. What is the depreciation tax shield? Multiple Choice $19,530 $9,695 $12,245 $6,440 $3,255

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