A project requires an initial investment in equipment of $81,000 and then requires an initial investment in working capital of $19,000 (at t= 0). You expect the project to produce sales revenue of $100,000 per year for three years. You estimate manufacturing costs at 60% of revenues. (Assume all revenues and costs occur at year-end, i.e., t-1,t-2, and t-3.) The equipment depreciates using straight-line depreciation over three years. At the end of the project, the firm can sell the equipment for $20,000 and recover the investment in net working capital. The corporate tax rate is 30% and the cost of capital is 15%. Calculate the NPV of the project:

A project requires an initial investment in equipment of $81,000 and then requires an initial investment in working capital of $19,000 (at t= 0). You expect the project to produce sales revenue of $100,000 per year for three years. You estimate manufacturing costs at 60% of revenues. (Assume all revenues and costs occur at year-end, i.e., t-1,t-2, and t-3.) The equipment depreciates using straight-line depreciation over three years. At the end of the project, the firm can sell the equipment for $20,000 and recover the investment in net working capital. The corporate tax rate is 30% and the cost of capital is 15%. Calculate the NPV of the project:

Name: QUESTION 13A project requires an initial investment in equipment of $
Uploaded: 2024-03-20T06:50:59.000Z
Channel: Bartleby
Description: QUESTION 13A project requires an initial investment in equipment of $81,000 and then requires an initial investment in working capital of $19,000 (at t = 0).You expect the project to produce sales revenue of $100,000 per year for three years. You es

EBK CONTEMPORARY FINANCIAL MANAGEMENT

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter11: Capital Budgeting And Risk

Section: Chapter Questions

Problem 15P

See similar textbooks

Similar questions

A project requires an initial investment in equipment of $99,000 and then requires an initial investment in working capital of $16,000 (at t = 0). You expect the project to produce sales revenue of $135,000 per year for three years. You estimate manufacturing costs at 60 percent of revenues. (Assume all revenues and costs occur at year-end [i.e., t = 1, t = 2, and t = 3]). The equipment depreciates using straight-line depreciation over three years. At the end of the project, the firm can sell the equipment for $13,300 and recover the investment in net working capital. The corporate tax rate is 21 percent and the cost of capital is 15 percent. Calculate the NPV of the project. Multiple Choice $4,985 $13,879 −$3,880 $8,487
Revenues generated by a new fad product are forecast as follows: Year Revenues 1 $ 46,000 2 30,000 3 20,000 4 10,000 Thereafter 0 Expenses are expected to be 50% of revenues, and working capital required in each year is expected to be 30% of revenues in the following year. The product requires an immediate investment of $51,000 in plant and equipment. Required: What is the initial investment in the product? Remember working capital. If the plant and equipment are depreciated over 4 years to a salvage value of zero using straight-line depreciation, and the firm’s tax rate is 40%, what are the project cash flows in each year? If the opportunity cost of capital is 15%, what is project NPV? What is project IRR?
Revenues generated by a new fad product are forecast as follows: Year Revenues 1 $ 50,000 2 35,000 3 30,000 4 20,000 Thereafter 0 Expenses are expected to be 40% of revenues, and working capital required in each year is expected to be 20% of revenues in the following year. The product requires an immediate investment of $60,000 in plant and equipment. Required: What is the initial investment in the product? Remember working capital. If the plant and equipment are depreciated over 4 years to a salvage value of zero using straight - line depreciation, and the firm's tax rate is 20%, what are the project cash flows in each year? If the opportunity cost of capital is 10%, what is project NPV?
Revenues generated by a new fad product are forecast as follows: Year Revenues 1 $46,000 2 30,000 3 20,000 4 10,000 Thereafter 0 Expenses are expected to be 50% of revenues, and working capital required in each year is expected to be 30% of revenues in the following year. The product requires an immediate investment of $51,000 in plant and equipment. Required: a. What is the initial investment in the product? Remember working capital. b. If the plant and equipment are depreciated over 4 years to a salvage value of zero using straight-line depreciation, and the firm’s tax rate is 40%, what are the project cash flows in each year? Assume the plant and equipment are worthless at the end of 4 years. c. If the opportunity cost of capital is 15%, what is the project's NPV? d. What is project IRR?
Revenues generated by a new fad product are forecast as follows: Year Revenues 1 $40,000 2 30,000 3 20,000 4 5,000 Thereafter 0 Expenses are expected to be 40% of revenues, and working capital required in each year is expected to be 20% of revenues in the following year. The product requires an immediate investment of $49,000 in plant and equipment. Required: a. What is the initial investment in the product? Remember working capital. b. If the plant and equipment are depreciated over 4 years to a salvage value of zero using straight-line depreciation, and the firm’s tax rate is 20%, what are the project cash flows in each year? Assume the plant and equipment are worthless at the end of 4 years. c. If the opportunity cost of capital is 10%, what is the project's NPV? d. What is project IRR? Req A What is the initial investment in the product? Remember working capital. Req B If the plant and equipment are depreciated over 4 years to a salvage value of zero…
Revenues generated by a new fad product are forecast as follows: Year Revenues 1 $60,000 2 40,000 3 30,000 4 20,000 Thereafter 0 Expenses are expected to be 40% of revenues, and working capital required in each year is expected to be 30% of revenues in the following year. The product requires an immediate investment of $70,000 in plant and equipment. Required: a. What is the initial investment in the product? Remember working capital. b. If the plant and equipment are depreciated over 4 years to a salvage value of zero using straight-line depreciation, and the firm’s tax rate is 20%, what are the project cash flows in each year? Assume the plant and equipment are worthless at the end of 4 years. c. If the opportunity cost of capital is 10%, what is the project's NPV? A negative value should be indicated by a minus sign. Do not round intermediate calculations. Round your answer to 2 decimal places.) d. What is project IRR? (Do not round intermediate calculations. Enter…
Revenues generated by a new fad product are forecast as follows: Year Revenues 1 $50,000 2 35,000 3 30,000 4 20,000 Thereafter 0 Expenses are expected to be 40% of revenues, and working capital required in each year is expected to be 20% of revenues in the following year. The product requires an immediate investment of $60,000 in plant and equipment. a. What is the initial investment in the product? Remember working capital. b. If the plant and equipment are depreciated over 4 years to a salvage value of zero using straight-line depreciation, and the firm’s tax rate is 20%, what are the project cash flows in each year? Assume the plant and equipment are worthless at the end of 4 years. c. If the opportunity cost of capital is 10%, what is the project's NPV? d. What is the project IRR?
Revenues generated by a new fad product are forecast as follows: Year Revenues 1 60,000 2 40,000 3 30,000 4 10,000 Thereafter 0 Expenses are expected to be 30% of revenues, and working capital required in each year is expected to be 10% of revenues in the following year. The product requires an immediate investment of $81,000 in plant and equipment. a). What is the inital investment in the product? Rememebr working capital. b).If the plant and equipment are depreciated over 4 years to a slavage value of zero using straight-line depreciation, and the firm's tax rate is 20%, what are the project cash flows in each year? Assume the plant and equipment are worthless at the end of 4 years. c). If the opportunity cost of capital is 10%, what is the project's NPV? d). What is the project IRR?
Required information A process for producing the mosquito repellant Deet has an initial investment of $170,000 with annual costs of $46,000. Income is expected to be $90,000 per year. What is the payback period at i=0% per year? At i=12% per year? (Note: Round your answers to the nearest integer.) The payback period at /= 0% is determined to be The payback period at /= 12% is determined to be 4 years. 5 years.
Revenues generated by a new fad product are forecast as follows: Year Revenues 1 $40,000 2 30,000 3 20,000 4 5,000 Thereafter 6 Expenses are expected to be 40% of revenues, and working capital required in each year is expected to be 20% of revenues in the following year. The product requires an immediate investment of $49,000 in plant and equipment. Required: 0. What is the initial investment in the product? Remember working capital. b. If the plant and equipment are depreciated over 4 years to a salvage value of zero using straight-line depreciation, and the firm's tax rate is 20%, what are the project cash flows in each year? Assume the plant and equipment are worthless at the end
Question 1 Aguilera Acoustics, Inc. (AAI), projects unit sales for a new seven-octave voice emulation implant as follows: Year Unit Sales 1 8300 2 9200 3 10400 4 9800 5 8400 Production of the implants will require GH¢ 150,000 in net working capital to start and additional net working capital investments each year equal to 15 percent of the projected sales for that year. In the final year of the project, net working capital will decline to zero as the project is wound down. In other words, the investment in working capital is to be completely recovered by the end of the project’s life. Total fixed costs are GH¢ 240,000 per year, variable production costs are GH¢ 190 per unit, and the units are priced at GH¢ 345 each. The equipment needed to begin production has an installed cost of GH¢ 2,300,000. Because the implants are intended for professional singers, this equipment depreciated using the straight-line basis. In five years, this equipment…
Revenues generated by a new fad product are forecast as follows Year 1 - $56000 Year 2 - $40000 Year 3 - 30000 Year 4 - 20000 thereafter 0 Expenses are expected to be 50% of revenues, and the working capital required each year is expected to be 20% of revenues in the following year. the product requires an immediate investment of $60000 in plant and equipment 1. What is the initial investment in the product? remember working capital 2. If the plant and equipment are depreciated over 4 years to a salvage value of zero using straight-line depreciation and the firm's tax rate is 40% what is the project each flows in each year? assume the plant and equipment are worthless at the end of 4 years 3. If the opportunity cost of capital is 12% what is the project's NPV What is the project IRR?