Your company is considering a new computer system that will initially cost $1 million. Itwill save $400,000 a year in inventory and receivables management costs. The system isexpected to last for five years and will be depreciated using 3-year MACRS. The system isexpected to have a salvage value of $50,000 at the end of year 5. The project will requirean initial $20,000 investment in net working capital and the marginal tax rate is 40%. Therequired return is 8%.0OCFNCSNWCCFFAYear1$373,320- $1,000,000$ 20,000- $1,020,000 $373,320-Answer:What is the correct vaule for blank ?2($)($ @ )345$299,280 $269,640 $ 240,000($ @ )($ @ )($ ® )With all this, the NPV of the project is ($). Therefore, this project should be accepted.$299,280 $269,640

The OCF calculated is net of depreciation tax shield and net of taxes on the savings. Below we will…

Answered: Your company is considering 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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Mitchell, Inc. is considering investment in a machine to produce computer keyboards.  The price of the machine is $400,000 and its economic life is ten years.  The machine will be depreciated to a value of zero over the ten-year period.  The total size of the market is 1,000,000 keyboards per year. You can capture 1% of the market share each year.  The price of the keyboards is $40 in the first year.  You will incur fixed costs of $80,000 per year. The variable cost per unit of the keyboard is $20.  The corporate tax rate is 34%.  The discount rate is 15 percent. Estimate the total cash flows and find out the NPV, IRR, and PI of this project.
A firm is looking at a new project requiring a machine that would cost $500,000.The cost will be depreciated straightline to zero over the project's 5yr life at the end of which the machoine can be scrapped for $125,000. the tax rate = 23%. Calculate the machine's after-tax salvage value.
Fitzgerald Computers is considering a new project whose data are shown below. The required equipment has a 4-year tax life, after which it will be worthless, and it will be depreciated by the straight-line method over 4 years. Revenues and other operating costs are expected to be constant over the project's 4-year life. What is the project's Year 1 cash flow? Equipment cost (depreciable basis) Straight-line depreciation rate Sales revenues, each year Operating costs (excl. deprec.) Tax rate a. $27,500 b. $28,438 c. $22,750 d. $30,333 e. $21,000 $65,000 25.00% $60,000 $25,000 40.0%
Dog Up! Franks is looking at a new sausage system with an installed cost of $715,000. The asset qualifies for 100 percent bonus depreciation and can be scrapped for $97,000 at the end of the project's 5-year life. The sausage system will save the firm $207,000 per year in pretax operating costs, and the system requires an initial investment in net working capital of $59,000. If the tax rate is 22 percent and the discount rate is 8 percent, what is the NPV of this project? Note: Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16. NPV
1. Your company is considering a new computer system initially costing $1.25 million. It will save $400,000 per year in inventory and receivables management costs. The system is expected to last for five years and will be depreciated using 3-year MACRS. The system is expected to have a salvage value of $25,000 at the end of year 5. There is no impact on net working capital. The marginal tax rate is 21 %. The required return is 9%. Calculate the NPV and IRR for the project.
You are considering a new product launch. The project will cost $2,350,000, have a four- year life, and have no salvage value; depreciation is straight-line to zero. Sales are projected at 330 units per year; price per unit will be $19,600, variable cost per unit will be $14,000, and fixed costs will be $720,000 per year. The required return on the project Is 10 percent, and the relevant tax rate is 21 percent. a. Based on your experience, you think the unit sales, variable cost, and fixed cost projections given here are probably accurate to within 10 percent. What are the upper and lower bounds for these projections? What is the base-case NPV? What are the best-case and worst-case scenarios? (A negative answer should be indicated by a minus sign. Do not round Intermediate calculations. Round your NPV answers to 2 decimal places, e.g., 32.16. Round your other answers to the nearest whole number, e.g. 32.) Scenario Base Best Worst Unit Sales 330 363 297 Answer is complete and correct.…
Your firm needs a computerized machine tool lathe which costs $59,000 and requires $12,900 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 12 percent. If the lathe can be sold for $5,900 at the end of year 3, what is the after-tax salvage value? Note: Round your answer to 2 decimal places. Answer is complete but not entirely correct. Salvage value after tax $ 5,380.45
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A Company has an opportunity to produce and sell a new product. Your team has been asked to use capital budgeting analysis to determine whether this would be a profitable venture for the company. New equipment would have to be acquired to produce the product. The equipment would cost $155,000 and be usable for 10 years. After 10 years, it would have a salvage value equal to 5% of the original cost. The asset will be sold at salvage value at the end of the asset's life. The discount rate for the company is 7%. See below for the forecasted net income per year from this project. Year Net Income per year Year 1 2,144 Year 2 3,531 Year 3 5,133 Year 4 6,113 Year 5 10,243 Year 6 10,500 Year 7 12,546 Year 8 12,600 Year 9 12,600 Year 10 12,600 Required: 1. Calculate the Payback period and explain the results. (note, you can only use the formula with even cash flows, research how to calculate it with uneven cashflows) 2. Calculate ARR and explain the results (use average net income for this…
Vijay shiyal
You are considering a new product launch. The project will cost $2,050,000, have a four- year life, and have no salvage value; depreciation is straight-line to zero. Sales are projected at 210 units per year; price per unit will be $18.900, variable cost per unit will be $12,200, and fixed costs will be $600.000 per year. The required return on the project is 12 percent, and the relevant tax rate is 24 percent. a. Based on your experience, you think the unit sales, variable cost, and fixed cost projections given here are probably accurate to within 10 percent. What are the upper and lower bounds for these projections? What is the base-case NPV? What are the best-case and worst-case scenarios? (A negative answer should be indicated by a minus sign. Do not round intermediate calculations. Round your NPV answers to 2 decimal places, e.g., 32.16. Round your other answers to the nearest whole number, e.g. 32.) Scenario C. Base Best Worst Unit Sales b. ANPV/AFC c. Cash break-even Variable…
The Zeron Corporation wants to purchase a new machine for its factory operations at a cost of $350,000. The investment is expected to generate $225,000 in annual cash flows for a period of four years. The required rate of return is 10%. The new machine is expected to have zero value at the end of the four-year period. What is the net present value of the investment closest to? Would the company want to purchase the new machine? Income taxes are not considered. A) $363,025; yes B) $22,500; no C) $350,000; yes D) $375,650; no

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