Your firm is contemplating the purchase of a new $655,000 computer-based order entrysystem. The system will be depreciated straight-line to zero over its 5-year life. It will beworth $129,000 at the end of that time. You will save $208,000 before taxes per year inorder processing costs, and you will be able to reduce working capital by $144,000 (thisis a one-time reduction). If the tax rate is 21 percent, what is the IRR for this project? (Donot round intermediate calculations and enter your answer as a percent rounded to 2decimal places, e.g., 32.16.)> Answer is complete but not entirely correct.IRR25.47 X %

IRR stands for "Internal Rate of Return," and it is a financial metric used to evaluate the…

Answered: Your firm is contemplating the purchase…

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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Better Mousetrap's research laboratories just purchased a new executive jet for its president. The jet is currently underutilized, and management is considering allowing other officers to use it. This move would save $15,500 per year in real terms in airline bills. Offsetting this benefit is the notion that the jet will have to be replaced a year sooner than originally planned. If the jet cost $1,050,000 and was originally expected to last eight years, should management allow other officers to use the jet? The real opportunity cost of is 15%. Yes, because the present value of saving, $64,486.51, is greater than the present value of cost, $57.966.48. No, because the present value of saving. $69.553.48 is less than the present value of cost, $87,038.26. No, because the present value of saving, $64.486.51, is less than the present value of cost, $76,492.59. No, because the present value of saving, $69,553.48, is Igreater than the present value of cost, $65,732.14.
Your firm is contemplating the purchase of a new $595,000 computer-based order entry system. The system will be depreciated straight-line to zero over its five-year life. It will be worth $63,000 at the end of that time. You will save $225,000 before taxes per year in order processing costs, and you will be able to reduce working capital by $78,000 (this is a one-time reduction). If the tax rate is 23 percent, what is the IRR for this project? Note: Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16. IRR
You are considering adding a new item to your company’s line of products. The machine required to manufacture the item costs $200000, and it depreciates straight-line over 4 years. The new item would require a $30000 increase in inventory and a $15000 increase in accounts payable. You plan to market the items for four years and then sell the machine for $40000. You expect to sell 2000 items per year at a price of $300. You expect manufacturing costs to be $220 per item and the fixed cost to be $3,000 per year. If the tax rate is 30% and your weighted average cost of capital is 12% per year, what is the net present value of selling the new item? ) $159,744 2) $73,903 3) $191,692 4) -$159,744 5) -$191,692
Your firm is contemplating the purchase of a new $410,000 computer-based order entry system. The system will be depreciated straight-line to zero over its five-year life. You will save $125,000 before taxes per year in order processing costs, and you will be able to reduce working capital by $35,000 at the beginning of the project. Working capital will revert back to normal at the end of the project. If the tax rate is 21 percent, what is the IRR for this project?
After spending $9,600 on client-development, you have just been offered a big production contract by a new client. The contract will add $196,000 to your revenues for each of the next five years and it will cost you $96,000 per year to make the additional product. You will have to use some existing equipment and buy new equipment as well. The existing equipment is fully depreciated, but could be sold for $45,000 now. If you use it in the project, it will be worthless at the end of the project. You will buy new equipment valued at $29,000 and use the 5-year MACRS schedule to depreciate it. It will be worthless at the end of the project. Your current production manager earns $79,000 per year. Since she is busy with ongoing projects, you are planning to hire an assistant at$38,000 per year to help with the expansion. You will have to immediately increase your inventory from $20,000 to $30,000. It will return to $20,000 at the end of the project is 21% and your discount rate is 14.7%. What…
LOA Bank Limited quotes a 9 percent interest rate on loans for 1 year. You are seeking a loan of $50,000 and as such you are expected to pay $4,500 in interest for the year. The terms of the loan require you to repay the principal and interest at the end of year one = $54,500. LOA Bank Limited thus requires you to pay $54,500 over a 12 month period, or $4,541.67, per month over the next 12 months.Is this a 9 percent loan? What rate should be legally quoted? What is the effective annual rate?Kindly show all workings in detail.
Your firm is contemplating the purchase of a new $595,000 computer-based order entry system. The system will be depreciated straight-line to zero over its five-year life. It will be worth $63,000 at the end of that time. You will save $225,000 before taxes per year in order processing costs, and you will be able to reduce working capital by $78,000 (this is a one-time reduction). If the tax rate is 23 percent, what is the IRR for this project? Note: Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16. IRR Answer is complete but not entirely correct. 8.96
Your firm is contemplating the purchase of a new $535,000 computer-based order entry system. The system will be depreciated straight-line to zero over its five-year life. It will be worth $ 30,000 at the end of that time. You will save $165,000 before taxes per year in order processing costs, and you will be able to reduce working capital by $60,000 (this is a one-time reduction). If the tax rate is 24 percent, what is the IRR for this project? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.)
The Elite Car Rental Corporation is contemplating expanding its short-term rental fleet by 30 automobiles at a cost of $900,000. It expects to keep the autos for only two years and to sell them at the end of that period for 60 percent, on average, of what they cost. The plan is to generate $21,000 of incremental revenue per additional auto in each year of operation. The controller estimates that other costs will amount to 20 cents per kilometre on an average of 40,000 kilometres per car per year. She also estimates that the new business will require an investment of $10,000 in additional working capital. The firm is in a 30 percent tax bracket and uses 12 percent as a cost of capital a. Calculate the NPV (Do not round the intermediate calculations. Round the final answer to the nearest whole dollar. Negative answer should be indicated by a minus sign. Omit $ sign in your response.) b. Should Elite purchase the automobiles? O a. a)NPV = $82,286 ± 0.1% and b)NO O b. a)NPV = -$72,386 ±…
Our new computer system cost us $172,000. We will outgrow it in five years. When we sell it, we will probably get only 10% of the purchase price. CCA on the computer will be calculated at a 30% rate (Class 10). Calculate the CCA and UCC values for five years. (Round your intermediate calculations and final answers to 2 decimal places. Omit $ sign in your response.) Year 1 2 3 4 5 $ $ $ $ CCA Ending UCC $ $ $ $ $ What will be the after-tax proceeds from the sale assuming the asset pool remains open? Assume a 40% tax rate. (Omit $ sign in your response.) After-tax proceeds
Your firm is contemplating the purchase of a new $1,200,000 computer- based order entry system. The system will be depreciated straight-line to zero over its 10 (ten-) year life. It will be worth $100,000 at the end of that time. You will save $400,000 before taxes per year in order processing costs, and you will be able to reduce working capital by $120,000 (this is a 1 (one) time reduction). If the tax rate is 25 percent and discount rate is 10%, what is the NPV for this project?
Your firm is contemplating the purchase of a new $540,000 computer - based order entry system. The system will be depreciated straight - line to zero over its five - year life. It will be worth $52, 000 at the end of that time. You will save $300,000 before taxes per year in order processing costs, and you will be able to reduce working capital by $67,000 (this is a one - time reduction). If the tax rate is 23 percent, what is the IRR for this project? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.)

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