FINANCIAL MANAGEMENT: THEORY AND PRACT
FINANCIAL MANAGEMENT: THEORY AND PRACT
15th Edition
ISBN: 9781305632455
Author: BRIGHAM E. F.
Publisher: CENGAGE L
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Chapter 11, Problem 1P

a)

Summary Introduction

To compute: The initial investment cost.

b)

Summary Introduction

To discuss: Whether there would be a change in the answer if there is a spending by the company on the research activity.

c)

Summary Introduction

To discuss: The effect in the answer if there is a sale of the building.

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Tannen Industries is considering an expansion. The necessaryequipment would be purchased for $18 million, and the expansion would require an additional$2 million investment in net operating working capital. The tax rate is 40%.a. What is the initial investment outlay?b. The company spent and expensed $20,000 on research related to the project last year.Would this change your answer? Explain.c. The company plans to use a building that it owns to house the project. The buildingcould be sold for $1 million after taxes and real estate commissions. How would thatfact affect your answer?
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
Concose Park Department is considering a new capital investment. The cost of the machine is​ $280,000. The annual cost savings if the new machine is acquired will be​ $165,000. The machine will have a 3−year life and the terminal disposal value is expected to be​ $35,000. There are no tax consequences related to this decision. If Concose Park Department has a required rate of return of​ 14%, which of the following is closest to the present value of the​ project?
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