You are the financial analyst for a tennis racket manufacturer. The company isconsidering using a graphitelike material in its tennis rackets. The company hasestimated the information in the following table about the market for a racket with thenew material. The company expects to sell the racket for 5 years. The equipmentrequired for the project will be depreciated on a straight-line basis and has no salvagevalue. The required return for projects of this type is 14 percent and the company has a25 percent tax rate.Market sizeMarket sharePessimistic115,000Expected125,000Optimistic137,00018%22%24%Selling price$165$ 170$ 174Variable costs per$ 108$ 104$ 101unitFixed costs per yearInitial investment$980,000$1,675,000$925,000$1,525,000$895,000$1,505,000Calculate the NPV for each case for this project. Assume a negative taxable incomegenerates a tax credit. (A negative amount should be indicated by a minus sign. Donot round intermediate calculations and round your answers to 2 decimal places, e.g.,32.16.)PessimisticExpectedOptimistic

Net Present Value (NPV) is an essential tool in capital budgeting and investment decision-making. It…

Answered: You are the financial analyst for a…

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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Vijay
Caine Bottling Corporation is considering the purchase of a new bottling machine. The machine would cost $193,900 and has an estimated useful life of 8 years with zero salvage value. Management estimates that the new bottling machine will provide net annual cash flows of $30,600. Management also believes that the new bottling machine will save the company money because it is expected to be more reliable than other machines, and thus will reduce downtime. Assume a discount rate of 7%. Click here to view the factor table. Calculate the net present value. (If the net present value is negative, use either a negative sign preceding the number eg -45 or parentheses eg (45). For calculation purposes, use 5 decimal places as displayed in the factor table provided. Round present value answer to 0 decimal places, eg. 125.) Net present value $ $ How much would the reduction in downtime have to be worth in order for the project to be acceptable? (Round answer to O decimal places, e.g. 125.) 11178…
Kingbird Bottling Corporation is considering the purchase of a new bottling machine. The machine would cost $200,000 and has an estimated useful life of eight years with zero salvage value. Management estimates that the new bottling machine willprovide net annual cash flows of $39,500. Management also believes that the new machine will save the company money because it is expected to be more reliable than other machines, and thus will reduce downtime. Assume a discount rate of 12%. Click here to view the factor table. Calculate the net present value. (lf the net present value is negative, use either a negative sign preceding the number e.g. -45 or parentheses e.g. (45). For calculation purposes, use 5 decimal places as displayed in the factor table provided, e.8. 1.25124. 5 Round present value answer to 0 decimal places, e.8. 1,250.) 1. net present value? 2. How much would the reduction in downtime have to be worth in order for the project to be acceptable? Present value of reduction…
You are the financial analyst for a tennis racket manufacturer. The company is considering using a graphitelike material in its tennis rackets. The company has estimated the information in the following table about the market for a racket with the new material. The company expects to sell the racket for 5 years. The equipment required for the project will be depreciated on a straight-line basis and has no salvage value. The required return for projects of this type is 14 percent and the company has a 24 percent tax rate. Market size Market share Selling price Variable costs per unit Fixed costs per year Initial investment Pessimistic Expected 124,000 Pessimistic Expected Optimistic $ $ $ $ $ 18% 152 99 $ 134,000 22% 157 95 $971,000 $916,000 $1,635,000 $1,485,000 -482,252.94 x 1,269,299.88 X 2,753,603.41 Optimistic Answer is complete but not entirely correct. Calculate the NPV for each case for this project. Assume a negative taxable income generates a tax credit. (A negative amount…
You are the financial analyst for a tennis racket manufacturer. The company is considering using a graphitelike material in its tennis rackets. The company has estimated the information in the following table about the market for a racket with the new material. The company expects to sell the racket for 6 years. The equipment required for the project will be depreciated on a straight-line basis and has no salvage value. The required return for projects of this type is 13 percent and the company has a 23 percent tax rate. Market size Market share Selling price Variable costs per unit Fixed costs per year Initial investment Pessimistic 129,000 Pessimistic Expected Optimistic 19% $142 $95 $ 967,000 $ 1,838,000 Expected 139,000 23% $147 $91 $ 912,000 $1,688,000 Optimistic 151,000 25% $ 151 $88 $ 882,000 $1,668,000 Calculate the NPV for each case for this project. Assume a negative taxable income generates a tax credit. (A negative amount should be indicated by a minus sign. Do not round…
Fun Land is considering adding a miniature golf course to its facility. The course would cost $75000, would be depreciated on a straight line basis over its 4-year life, and would have a zero salvage value. The estimated income from the golfing fees would be $40000 a year with $12000 of that amount being variable cost. The fixed cost would be $6000. In addition, the firm anticipates an additional $15000 in revenue from its existing facilities if the course is added. The project will require $7000 of net working capital, which is recoverable at the end of the project. What is the net present value of this project at a discount rate of 12 percent and a tax rate of 35 percent? $19,812.09 $20,360.22 $15,429.48 $13,199.40 $24,738.41
please asnwer correctly: Your company has been approached to bid on a contract to sell 5,000 voice recognition (VR) computer keyboards per year for four years. Due to technological improvements, beyond that time they will be outdated and no sales will be possible. The equipment necessary for the production will cost $3.4 million and will be depreciated on a straight-line basis to a zero salvage value. Production will require an investment in net working capital of $395,000 to be returned at the end of the project, and the equipment can be sold for $325,000 at the end of production. Fixed costs are $595,000 per year, and variable costs are $85 per unit. In addition to the contract, you feel your company can sell 12,300, 14,600, 19,200, and 11,600 additional units to companies in other countries over the next four years, respectively, at a price of $180. This price is fixed. The tax rate is 23 percent, and the required return is 10 percent. Additionally, the president of the company…
The CFO of The Fun Factory is investigating the possibility of investing in a three-dimensional printer that would cost $16,500. The printer would eliminate the need to have prototypes of new toys be produced by a third party. The cost of having the prototypes manufactured by the third party is about $7,161 per year. The printer would have a useful life of five years with no salvage value with expected annual operating costs of $3,300 per year. Required: Compute the simple rate of return on the printer. (Round your answer to 1 decimal place.) Simple rate of return %
Manshukh
Nikul
EKH, Inc. is considering the purchase of a machine that would cost $400,000 and would last for 6 years,at the end of which, the machine would have a salvage value of $47,000. The machine would reducelabor and other costs by $109,000 per year. Additional working capital of $4,000 would be neededimmediately, all of which would be recovered at the end of 6 years. The company requires a minimumpretax return of 17% on all investment projects.Required :Determine the net present value of the project
Vinay

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