Your firm is considering investing in a new capital project that requires an initial investment of $800,000. This equipment will be depreciated by the straight-line over four years down to a value of zero. The machinery also has an operation life of four years. At the end of that life, you estimate it will have a salvage value of $120,000. Any gain or loss on the resell will be taxed at the firm's marginal tax rate. During the four-year life, the project should generate annual cash flows of $225,000 per year. The firm has a marginal tax rate of 22%, and it requires a return of 8.50% on projects of such risk. What is the Net Present Value of this project? [Present the answer rounded to the nearest dollar, e.g. 359462]

Your firm is considering investing in a new capital project that requires an initial investment of $800,000. This equipment will be depreciated by the straight-line over four years down to a value of zero. The machinery also has an operation life of four years. At the end of that life, you estimate it will have a salvage value of $120,000. Any gain or loss on the resell will be taxed at the firm's marginal tax rate. During the four-year life, the project should generate annual cash flows of $225,000 per year. The firm has a marginal tax rate of 22%, and it requires a return of 8.50% on projects of such risk. What is the Net Present Value of this project? [Present the answer rounded to the nearest dollar, e.g. 359462]

Name: 9 Your firm is considering investing in anew capital project that requ
Uploaded: 2024-03-20T06:50:59.000Z
Channel: Bartleby
Description: 9 Your firm is considering investing in anew capital project that requires aninitial investment of $800,000. Thisequipment will be depreciated by thestraight-line over four years down to avalue of zero. The machinery also hasan operation life of four

EBK CONTEMPORARY FINANCIAL MANAGEMENT

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter10: Capital Budgeting: Decision Criteria And Real Option

Section: Chapter Questions

Problem 4P

See similar textbooks

Similar questions

Your firm is considering investing in a new capital project that requires an initial investment of $8,000,000. This equipment will be depreciated by the straight-line over four years down to a value of zero. The machinery also has an operation life of four years. At the end of that life, you estimate it will have a salvage value of $120,000. Any gain or loss on the resell will be taxed at the firm's marginal tax rate. During the four-year life, the project should generate annual cash flows of $225,000 per year. The firm has a marginal tax rate of 22%, and it requires a return of 8.50% on projects of such risk. What is the Net Present Value of this project?
Your firm is considering investing in a new capital project that requires an initial investment of $800,000. This equipment will be depreciated by the straight-line over four years down to a value of zero. The machinery also has an operating life of four years. At the end of that life, you estimate it will have a salvage value of $120,000. Any gain or loss on the resell will be taxed at the firm's marginal tax rate. During the four-year life, the project should generate annual cash flows of $225,000 per year. The firm has a marginal tax rate of 22%, and it requires a return of 8.50% on projects of such risk. What is the Net Present Value of this project? [Present the answer rounded to the nearest dollar, e.g. 359462] Numeric Response
Your company is about to undertake a major investment project. The project will require an initial investment of $200 million in a machine plus another $35 million for working capital. Tax authorities will allow you to depreciate the machine on a straight-line basis over four years to a salvage value of zero. In fact, however, you expect that you can sell the machine for $30 million at the end of Year 4. You will need to have a working capital balance on hand at the end of each year equal to 30% of that year’s sales. The working capital can be fully recovered at the end of the project’s life. You expect that the project will generate $100 million in sales and $40 million in cash operating expenses (excluding depreciation) during each of the next four years. The corporate tax rate is 40%. The discount rate is 7.25%. What is NPV of this project?
A corporation is considering purchasing amachine that will save $150,000 per year beforetaxes. The cost of operating the machine (includingmaintenance) is $30,000 per year. The machine willbe needed for five years, after which it will have azero salvage value. MACRS depreciation will beused, assuming a three-year class life. The marginalincome tax rate is 40%. If the firm wants 15% returnon investment after taxes, how much can it afford topay for this machine?
Your firm requires an average accounting return (AAR) of at least 15 percent on all fixed asset purchases. Currently, you are considering some new equipment costing $96,000. This equipment will have a 3-year life over which time it will be depreciated on a straight line basis to a zero book value. The annual net income from this project is estimated at $5,500, $12,400, and $17,600 for the 3 years. Should you accept this project based on the accounting rate of return? Why or why not? a. no; because the AAR is equal to 15 percent b. yes; because the AAR is less than 15 percent c. yes; because the AAR is greater than 15 percent d. yes; because the AAR Note:- Do not provide handwritten solution. Maintain accuracy and quality in your answer. Take care of plagiarism. Answer completely. You will get up vote for sure.
Harrison Company is considering taking on a project that requires an initial cost of $180,000. The project has a lifespan of two (2) years, after which after two years the project has no salvage value. The possible incremental after-tax cash flows and their probabilities can be seen in the following table. The required return by the company for this investment is 8%. Questions :a). The expected net present value of this projectb). If it is possible to abandon (abandonment) this project and the abandonment value at the end of the first year is $90,000 after tax. For this project, is abandonment of this project after one year is the right choice? Calculate the expected net present value, assuming that the company would abandon the project if it were useful. Compare with the calculations in the answer to part (a). What are the implications if you are a financial manager?
your company is considering a new project that will require $10,000 of new equipment at the start of the project. T he equipment will have a depreciable life of five years and will be depreciated to a book value of $3000 using straight line depreciation. the cost of capital is 9 percent and the firm tax rate is 21 percent. estimate the present value of the tax benifits frm depreciation.
Tree's Ice Cubes is considering a new three-year expansion project. The initial fixed asset investment will be $1.80 million and the fixed assets will be depreciated straight-line to zero over its three-year tax life, after which time the assets will be worthless. The annual sales of the project is estimated to be $1,005,000, with costs of $485,000. What is the OCF for this project, if the tax rate is 21 percent? (Do not round intermediate calculations.) Multiple Choice $536,800 $812,246 $544,200 $616,150 $746150
Nguyen Company has an opportunity to purchase an asset that will cost company $59,000. The asset is expected to add $23,000 per year to the company’s net income. Assuming the asset has a five-year useful life and zero salvage value, the unadjusted rate of return based on the average investment will be ?
DDR Enterprises is analyzing an expansion project. The project's installed cost is $80,000. It is eligible for 100% bonus depreciation. The project has a $12,000 salvage value at the end of its five year expected life. The project will requie an additional $8,000 investment in net working capital. The tax rate is 25%. What is the project's initial investment? If you could show the steps in calcualtion too that would be great!
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.
We are evaluating a project that costs RM604,000, has an 8-year life, and has no salvagevalue. Assume that depreciation is straight-line to zero over the life of the project. Sales areprojected at 55,000 units per year. Price per unit is RM36, variable cost per unit is RM17, andfixed costs are RM685,000 per year. The tax rate is 21 percent and we require a return of 15percent on this project.(i) Calculate the base-case cash flow and NPV. (ii) Assume the sales figure increases to 56,000 units per year, calculate the sensitivity of NPVto changes in the sales figure?