Dog Up! Franks is looking at a new sausage system with an installed cost of $715,000. The asset qualifies for 100 percent bonusdepreciation and can be scrapped for $97,000 at the end of the project's 5-year life. The sausage system will save the firm $207,000per year in pretax operating costs, and the system requires an initial investment in net working capital of $59,000. If the tax rate is 22percent and the discount rate is 8 percent, what is the NPV of this project?Note: Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.NPV

Therefore, Net present value = PV of cash inflow + PV of terminal cashflow - PV of cash outflow…

Answered: Dog Up! Franks is looking at a new…

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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Dog Up! Franks is looking at a new sausage system with an installed cost of $863,006. This cost will be depreciated straight-line to 68,640 over the project's 7-year life, at the end of which the sausage system can be scrapped for $130,815. The sausage system will save the firm $249,240 per year in pretax operating costs, and the system requires an initial investment in net working capital of $61,737. If the tax rate is 0.29 and the discount rate is 0.1, what is the total cash flow in year 7? (Make sure you enter the number with the appropriate +/- sign)
None
You are considering a new product launch. The project will cost $900,000, have a 4-year life, and have no salvage value; depreciation is straight-line to zero. Sales are projected at 560 units per year; price per unit will be $19,200, variable cost per unit will be $15,900, and fixed costs will be $950,000 per year. The required return on the project is 12 percent, and the relevant tax rate is 23 percent. a. The unit sales, variable cost, and fixed cost projections given above 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? (A negative amount should be indicated by a minus sign. Do not round intermediate calculations and round your NPV answers to 2 decimal places, e.g., 32.16.) Scenario Unit sales Variable cost per unit Fixed costs Scenario Base-case Best-case Worst-case Upper bound NPV Lower bound units
Elena's Café is investing in a new commercial refrigeration unit that will cost $40,000. They estimate that the unit will produce annual revenues of $12,000 for each of the next 6 years. The refrigeration unit will have negligible salvage value at the end of the next 6 years. Assuming a tax rate of 24%, a MACRS 5-year property class, 50% bonus depreciation, and an after-tax MARR of 8%, compute the present worth of the refrigeration unit and determine whether or not Elena's Café should invest in the refrigeration unit.
Your firm needs a machine which costs $120,000, and requires $33,000 in maintenance for each year of its 5 year life. After 5 years, this machine will be replaced. The machine falls into the MACRS 5-year class life category. Assume a tax rate of 35 percent and a discount rate of 15 percent. What is the depreciation tax shield for this project in year 5?
Daily Enterprises is purchasing a $10.4 million machine. It will cost $46,000 to transport and install the machine. The machine has a depreciable life of five years using straight-line depreciation and will have no salvage value. The machine will generate incremental revenues of $4.4 million per year along with incremental costs of $1.5 million per year. Daily's marginal tax rate is 21%. You are forecasting incremental free cash flows for Daily Enterprises. What are the incremental free cash flows associated with the new machine? The free cash flow for year 0 will be $10,446,000. (Round to the nearest dollar.) The free cash flow for years 1-5 will be $ (Round to the nearest dollar.)
Dog Up! Franks is looking at a new sausage system with an installed cost of $695,000. The asset qualifies for 100 percent bonus depreciation and can be scrapped for $93,000 at the end of the project's 5-year life. The sausage system will save the firm $199,000 per year in pretax operating costs, and the system requires an initial investment in net working capital of $51,000. If the tax rate is 23 percent and the discount rate is 8 percent, what is the NPV of this project? Note: Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16. NPV Answer is complete but not entirely correct. $ 76,896.20 ☑
Dog Up! Franks is looking at a new sausage system with an installed cost of $611,710. This cost will be depreciated straight-line to 26,157 over the project's 7-year life, at the end of which the sausage system can be scrapped for $91,339. The sausage system will save the firm $182,535 per year in pretax operating costs, and the system requires an initial investment in net working capital of $66,568. If the tax rate is 0.2 and the discount rate is 0.11, what is the total cash flow in year 7? (Make sure you enter the number with the appropriate +/- sign)
Dog Up! Franks is looking at a new sausage system with an initial cost of $475,000 that will last for five years. The fixed asset will qualify for 100 percent bonus depreciation in the first year, at the end of which the sausage system can be scrapped for $65,000. The sausage system will save the firm $145,000 per year in pretax operating costs, and the system requires an initial investment in net working capital of $28,000. If the tax rate is 24 percent and the discount rate is 12 percent, what is the NPV of this project? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.) NPV
Daily Enterprises is purchasing a $10.3 million machine. It will cost $46,000 to transport and install the machine. The machine has a depreciable life of five years using straight-line depreciation and will have no salvage value. The machine will generate incremental revenues of $4.2 million per year along with incremental costs of $1.1 million per year. Daily’s marginal tax rate is 35%. You are forecasting incremental free cash flows for Daily Enterprises. What are the incremental free cash flows associated with the new machine? A. The free cash flow for year 0 will be? (Round to nearest dollar.) B. The free cash flow for years 1-5 will be? (Round to the nearest dollar.)
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A corporation is considering a proposal for the purchase of a machine that will save $130,000 per year before taxes. The cost of operating the machine. including maintenance, is $20,000 per year. The machine will be needed for five years after which it will have a zero salvage value. MACRS depreciation will be used. assuming a three-year class life. The marginal income-tax rate is 40%. If the firm wants 12% IRR after taxes, how much can it afford to pay for this machine?

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