Fundamentals of Corporate Finance (Mcgraw-hill/Irwin Series in Finance, Insurance, and Real Estate)
Fundamentals of Corporate Finance (Mcgraw-hill/Irwin Series in Finance, Insurance, and Real Estate)
9th Edition
ISBN: 9781259722615
Author: Richard A Brealey, Stewart C Myers, Alan J. Marcus Professor
Publisher: McGraw-Hill Education
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Chapter 9, Problem 15QP
Summary Introduction

To determine: Net present value.

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A retrofitted space-heating system is being considered for a small office building. the $110,000 retrofitted space-heating system was projected to save $30,000 per year in electrical power and be worth $8,000 at the end of the six-year study period. Use the FW method to determine whether the project is still economically justified if the system has zero market value after six years. The MARR is 15% per year.
The management of Ballard MicroBrew is considering the purchase of an automated bottling machinefor $120,000. The machine would replace an old piece of equipment that costs $30,000 per year to operate. The new machine would cost $12,000 per year to operate. The old machine currently in use couldbe sold now for a scrap value of $40,000. The new machine would have a useful life of 10 years with nosalvage value.Required:Compute the simple rate of return on the new automated bottling machine.
Please show all your work! Polarlech Inc. is considering producing a new widget. The production equipment, costing $12 million, will depreciate over a six-year period with no salvage value. The widget's retail price is $250, with an anticipated annual sales volume of 150,000 units. Fixed costs are projected at $900,000 annually, and variable costs amount to $150 per widget. Initial project startup requires a net working capital investment of $1,200,000. No additional working capital is needed during the project. The applicable tax rate is 25%. Calculate the IRRs and NPVs for this project using the WACC under the following scenario: PolarTech Inc. can obtain debt funding at 8 percent. Its marginal income tax rate is 25 percent. The yield on US Treasury securities is 3 percent. The market risk premium is 6.0 percent, and the firm's beta is 2. It has a targeted debt-to-equity ratio of 1:1 (50 percent debt, 50 percent equity).
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