A fast food restaurant feels they could increase their profits by introducing ice cream. The equipment will cost $250,000 and has expected profits of $125,000 in the 1st year, $100,000 in the 2nd year, and $60,000 in the 3rd year. It could sell the equipment for scrap at the end of 3 years for $10,000. If the company's required rate of return is 12% compounded annually, what is the Net a. Present Value (NPV) of this investment? b. Is the investment worth while?

A fast food restaurant feels they could increase their profits by introducing ice cream. The equipment will cost $250,000 and has expected profits of $125,000 in the 1st year, $100,000 in the 2nd year, and $60,000 in the 3rd year. It could sell the equipment for scrap at the end of 3 years for $10,000. If the company's required rate of return is 12% compounded annually, what is the Net a. Present Value (NPV) of this investment? b. Is the investment worth while?

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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You are considering investing in a company that cultivates abalone for sale to local restaurants. Use the following information: Sales price per abalone Variable costs per abalone Fixed costs per year Depreciation per year Tax rate = $43.10 = $10.50 = $438,000 = $131,000 = 21% The discount rate for the company is 13 percent, the initial investment in equipment is $917,000, and the project's economic life is 7 years. Assume the equipment is depreciated on a straight-line basis over the project's life and has no salvage value. a. What is the accounting break-even level for the project? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.) b. What is the financial break-even level for the project? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.) a. Accounting break-even level b. Financial break-even level units units
A corporation is considering purchasing a machine that will save $150,000 per year before taxes. The cost of operating the machine (including maintenance) is $30,000 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 25%. If the firm wants 15% return on investment after taxes, how much can it afford to pay for this machine? Click the icon to view the MACRS depreciation schedules Click the icon to view the interest factors for discrete compounding when /- 15% per year. If the firm wants 15% return on investment after taxes, it can afford to pay thousand for this machine. (Round to one decimal place.)
You are preparing to produce some goods for sale. You will sell them in one year and you will incur costs of $86,000 immediately. If your cost of capital is 7.3%, what is the minimum dollar amount you need to sell the goods for in order for this to be a non-negative NPV? The minimum dollar amount is $. (Round to the nearest dollar)
Solve the following three independent scenarios: A grocery store is considering the purchase of a new refrigeration unit with an initial investment of $412,000, and the store expects a return of $100,000 in year one, $72,000 in years two and three, $65,000 in years four and five, and $38,000 in year six and beyond, what is the payback period? Payback period years. Round your Payback Period (PB) answer to two decimal places (i.e. 12.34). An auto repair company needs a new machine that will check for defective sensors. The machine has an initial investment of $224,000. Incremental revenues, including cost savings, are $120,000, and incremental expenses, including depreciation, are $50,000. There is no salvage value. What is the accounting rate of return (ARR)? Accounting Rate of Return (ARR) = Round your ARR answer, in percentage format, to two decimal places (i.e. 12.34%).
Packaging equipment for Xi Cling Wrap costs $60,000 and is expected to result in end-of-year net savings of $23,000 per year for 3 years. The equipment will have a market value of $10,000 after 3 years. The equipment can be leased for $21,000 per year, payable at the beginning of each year. Xi Cling’s MARR is 10%/yr. Based on an internal rate of return analysis, determine if the packaging equipment should be purchased or leased.
You are considering a project which will cost $140,000. It is expected to bring in incomes of $45,000 per year for the next 5 years. You company's discount rate is 12%. What is the NPV of this project?
You are preparing to produce some goods for sale. You will sell them in one year and you will incur costs of $79,000 immediately. If your cost of capital is 7.2%, what is the minimum dollar amount you need to sell the goods for in order for this to be a non-negative NPV? The minimum dollar amount is $ (Round to the nearest dollar) COO
Management is considering buying a pump that costs $20,000 and could save them $7,500 per year over the next 3 years in maintenance costs. If our desired rate of return on any investment is 14% per annum, should we make the investment? Present value of $1 Period 10% 12% 14% 1 0.909 0.893 0.877 0.826 0.797 0.769 3 0.751 0.712 0.675 4 0.683 0.636 0.592 5 0.621 0.567 0.519
Fabco, Inc., is considering purchasing flow valves that will reduce annual operating costs by $10,000 per year for the next 12 years. Fabco’s MARR is 7%/year. Using an internal rate of return approach, determine the maximum amount Fabco should be willing to pay for the valves. $
Dunder Mitfin plans to install a computer system to measure the dimensions of products so thar the proper size boxes can be used to ship items. This well save packing materials, cardboard, and labor. If the savings will be $132310 the first year and increases by $ 9521each year for 9 years. What is the present worth of the system at an interest rate of 12%.Write your answer to two decimal places
Standby power for a manufacturing firm is currently produced using diesel-powered generators. In three years the company can switch to natural gas-powered generators. The company believes it can save $29,02 per year through year 7. If the company uses an interest rate of 5%, what is the present value at time 0 of the projected savings that will occur in years 3 through 7?
Elijah Enterprises will need to upgrade the computer system in 6 years. They anticipate the upgrade to cost $95,300. If the discount rate is 15%, what will be the required yearly investment needed to obtain the money for the upgrade?Round your (1+R)^n value to 2 decimal places and use that number for your final amount required rounded to the nearest dollar. Future Value / (1+R)^n = Amount Required / = What would be required if the discount rate was 8%? Future Value / (1+R)^n = Amount Required / =

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