oject our firm is contemplating the purchase of a new $580,000 computer-based order entry system. The system will be depreciated straight-line to zero over its five-year life. It will be worth $60,000 at the end of that time. You will save $210,000 before taxes per year in order processing costs, and you will be able to reduce working capital by $75,000 (this is a one-time reduc- tion). If the tax rate is 35 percent, what is the IRR for this project?
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![14. Project Evaluation [LO1] Your firm is contemplating the purchase of a new
$580,000 computer-based order entry system. The system will be depreciated
straight-line to zero over its five-year life. It will be worth $60,000 at the end of that
time. You will save $210,000 before taxes per year in order processing costs, and
you will be able to reduce working capital by $75,000 (this is a one-time reduc-
tion). If the tax rate is 35 percent, what is the IRR for this project?](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2Fc4dc87e0-e96d-4e5e-b098-65111426f94b%2F33685639-8fef-46cb-9ad2-96528f2f3d4e%2Ffjkovj2_processed.jpeg&w=3840&q=75)
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- 15 UPS is considering the purchase of a electric truck that would cost $150,000 and would last for 5 years. At the end of 5 years, the truck would have a salvage value of $20,000. By reducing labor and other operating costs, the machine would provide annual cost savings of $45,000. The company requires a minimum return of 19% on all investment projects. The net present value of the proposed project is closest to (Ignore income taxes.): PV factor of $1 annuity for 5 years at 19% is 3.058 and PV of $1 over 5 years is 0.419 A. $85,000 B. -$12,390 C. -$4,010 D. $145,99013. Project Analysis You are considering a new product launch. The project will cost $1.675 million, have a four-year life, and have no salvage value; depreciation is straight-line to zero. Sales are projected at 195 units per year; price per unit will be $16,300; variable cost per unit will be $9,400; and fixed costs will be $550,000 per year. The required return on the proiect is 12 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? b. Evaluate the sensitivity of your base-case NPV to changes in fixed costs. c. What is the accounting break-even level of output for this project? use excel to solve this5 Dog Up! Franks is looking at a new sausage system with an installed cost of $904,800. This cost will be depreciated straight-line to zero over the project's 3-year life, at the end of which the sausage system can be scrapped for $139,200. The sausage system will save the firm $278,400 per year in pretax operating costs, and the system requires an initial investment in net working capital of $64,960. If the tax rate is 24 percent and the discount rate is 11 percent, what is the NPV of this project?
- 32) CGI Inc. is developing a new software platform, which requires an immediate investment of $780 000 and another $260 000 in three years. Net returns expected are S450 000 after two years, $313 000 after four years, and $889 000 after six years. However, if they simply upgrade their current platform, it requires an immediate investment of S400 000, another $260 000 after two years, and $340 000 after four years. Net refurns are Sl87 500 per year for 8 years Determine the net present value at 5.9% Which project is preferable according to the net present value criterion? Upgrade by $53 309 Upgrade by $277 277 New Software platform by $76 $99 O New Software platform by $53 309Your 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?be ignored. 13. Project NPV United Pigpen is considering a proposal to manufacture high-protein hog feed. The project would make use of an existing warehouse, which is currently rented out to a neighboring firm. The next year's rental charge on the warehouse is S100,000, and thereafter the rent is expected to grow in line with inflation at 4% a year. In addition to using the warehouse, the proposal envisages an investment in plant and equipment of $1.2 million. This could be depreciated for tax purposes over 10 years. However, Pigpen expects to terminate the project at the end of eight years and to resell the plant and equipment in year 8 for $400,000. Finally, the project requires an initial investment in working capital of S350,000. Thereafter, working capital is forecasted to be 10% of sales in each of years 1 through 7. Year I sales of hog feed are expected to be $4.2 million, and thereafter sales are forecasted to grow by 5% a year, slightly faster than the inflation rate.…
- WestJet Airlines is considering purchasing 20 new planes that will save the company $25 million per year in fuel and maintenance costs for the next 10 years. If the cost of the new planes is $200 million dollars and WestJet's weighted average cost of capital (WACC) is 8.5%, what is the net present value (NPV) of the project? A. $4.4 million B. $30.4 million C. $50 million D. $0 E. -$200,000 Only typed answer12 You will bid to supply 3 jets per year for each of the next three years to the Navy. To get set up, you will need $60 million in equipment, to be depreciated straight‐line to zero over three years, with no salvage value. Total fixed costs per year are $10 million, and variable costs are $12 million per jet. If the maximum you can offer is $22 million each, what should you receive in salvage value before taxes in year 3 for the equipment?4. Your company is considering the introduction of a new product line. The initial investment required for this project is $500,000, and annual maintenance costs are anticipated to be $35,000. Annual operating costs will be directly proportional to the level of production at $7.50 per unit, and each unit of product can be sold for $50. If the MARR is 15% and the project has a life of 5 years, what is the minimum annual production level for which the project is economically viable?
- Problem:15 Engine valves company is considering building an assembly plant .The decision has been narrowed down to two possibilities. The company desires to choose the best plant at a level of operation of 10,000 gadgets a month. Both plants have an expected life of 10 years and are expected to have any salvage value at the time of their retirements .The cost of capital is 10 percent . Assuming a zero income tax rate , suggest what would be the desirable choice ? Cost of the monthly output of 10,000 valves Large Plant Rs Small plant Rs Initial cost 30,00,000 22,93,500 Direct labour : First shift 15,00,000 per year 7,80,000 per year Second shift 9.00,000 per year Overheads 2,40,000 per year 2,10,000 per yearThe Washington Nationals are considering adding more luxury booths to Nats Stadium. The project will cost $200 million and will add $30MM to revenue next year. After that the revenues will grow at 3%/year forever. Management believes the WACC for this project is 10%. What is the NPV of this investment? A. $382.3 million B. $182.2 million C. $228.6 million D. $200 million18. A firm is considering the installation of an automatic data processing unit to handle some of its accounting operations. Machines for that purpose may be purchased for P20,000 or maybe leased P8,000 for the first year and P1,000 every year now and then until the 4th year. Is it advisable to rent or buy the machine if money is worth 15%?