a. Payback period. b. Return on average investment. (Round your percentage answer to 1 decimal place (i.e., 0.123 to be entered as 12.3).) c. Net present value of the proposal to undertake contract work, discounted at an annual rate of 10 percent. (Refer to the annuity table in Exhibit 26-4.) (Round your "PV factors" to 3 decimal places.)
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- Postman Company is considering two independent projects. One project involves a new product line, and the other involves the acquisition of forklifts for the Materials Handling Department. The projected annual operating revenues and expenses are as follows: Required: Compute the after-tax cash flows of each project. The tax rate is 40 percent and includes federal and state assessments.Winett Corporation is considering an investment in special-purpose equipment to enable the company to obtain a four-year municipal contract. The equipment costs $106,000 and would have no salvage value when the contract expires at the end of four years. Estimated annual operating results of the project are as follows. Revenue from contract sales $ 323,000 Expenses other than depreciation $ 217,000 Depreciation (straight-line basis) 26,500 243,500 Increase in net income from contract work $ 79,500 All revenue and all expenses other than depreciation will be received or paid in cash in the same period as recognized for accounting purposes. Compute the following for Winett’s proposal to undertake this contract.a. Payback period. b. Return on average investment. (Round your percentage answer to 1 decimal place (i.e., 0.123 to be entered as 12.3).) c. Net present value of the proposal to…A Corporation is planning to add a new product line to its present business. The new product will require a new equipment costing PL.200,000 with a five-year life with no salvage value. The following estimates are made available: Annual Sales P6,600,000: Materials P2,200,000; Labor P900,000; FOH (excluding depreciation) P500,000; Selling and Administrative Expenses PL,500,000; and Income tax of 40%. Requirement: Compute the net cash inflows using liquidity and yield preference theories.
- Garcia Co. can invest in one of two alternative projects. Project Y requires a $360,000 initial investment for new machinery with a four-year life and no salvage value. Project Z requires a $360,000 initial investment for new machinery with a three-year life and no salvage value. The two projects yield the following annual results. Cash flows occur evenly within each year. Annual Amounts Sales of new product Expenses Materials, labor, and overhead (except depreciation) Depreciation-Machinery Selling, general, and administrative expenses Income Project Y $400,000 190,000 90,000 50,000 $70,000 Project Z $500,000 200,000 120,000 50,000 $130,000 Required 1. Compute each project's annual net cash flows. 2. Compute each project's payback period. If the company bases investment decisions solely on payback period, which project will it choose? Page 987 3. Compute each project's accounting rate of return. If the company bases investment decisions solely on accounting rate of return, which…A company is considering a 3-year project with an initial cost of $876,000. The project will not directly produce any sales but will reduce operating costs by $195,000 a year. The equipment is classified as MACRS 7-year property. The MACRS table values are .1429, .2449, .1749, .1249, .0893, .0892, .0893, and .0446 for Years 1 to 8, respectively. At the end of the project, the equipment will be sold for an estimated $410,000. The tax rate is 25 percent and the required return is 10 percent. An extra $42,000 of inventory will be required for the life of the project. What is the total cash flow for Year 3? $638,821.80 $629,821.80 $620,821.80 $611,821.80 $602,821.80Project Y requires a $324,000 investment for new machinery with a six-year life and no salvage value. The project yields the following annual results. Cash flows occur evenly within each year. (PV of $1. EV of $1. PVA of $1, and EVA of $1) (Use appropriate factor(s) from the tables provided.) Annual Anounts Sales of new product Expenses Materials, labor, and overhead (except depreciation) Depreciation-Machinery Selling, general, and ar strative expenses Income Problem 24-2A (Algo) Part 1 Required: 1. Compute Project Y's annual net cash flows. Annual amounts Sales of new product Expenses Materials, labor, and overhead (except depreciation) Depreciation Machinery Selling, general, and administrative expenses Income Net cash flow Income $ 370.000 $ 165,760 54,000 26,000 124,240 Project Y $ 370,000 165,760 54,000 26,000 $ 124,240 Cash Flow
- Company Q is considering a project which needs an equipment. The cost of the equipment is $350,000. This equipment will be depreciated for five years on a straight-line basis to zero-salvage value. The market value of the equipment at the end of the fifth year is $25,000. Initial investment in working capital is $22,000. Annual sales and operating costs (excluding depreciation) from this project are $175,000 and 93,000 respectively. Company pays tax at 40%. The annual operating cashflow from the project is A. $75200 B. $64000 C. $62000 D. $77200Assume that a company is considering buying a new piece of equipment for $250,000 that would have a useful life of five years and a salvage value of $33,000. The equipment would generate the following estimated annual revenues and expenses: Revenues Less operating expenses: Commissions Insurance Depreciation Maintenance $ 15,000 $(156,429) $(124,925) $36,537 5,000 43,400 $ 120,000 30,000 93,400 Net operating income $ 26,600 Assuming a discount rate of 14%, what is the net present value of this investment? Multiple Choice $7,437A corporate expects to receive $37,399 each year for 15 years if a particular project is undertaken. There will be an initial investment of $105,308. The expenses associated with the project are expected to be $7,716 per year. Assume straight-line depreciation, a 15- year useful life, and no salvage value. Use a combined state and federal 48% marginal tax rate, MARR of 8%, determine the project's after-tax net present worth. Enter your answer as follow: 123456.78
- A company plans to add an additional production line at an initial cost of $ 1,250,000 that will give gross savings of $ 1,000,000 per year for 6 years. The annual costs for operating this line would be $250,000 for the same period. For tax purposes the company uses sum-of-the-year-digits depreciation, a salvage value of $125,000 and a life of 6 years for evaluating the project... The debt ratio is 60% and the cost of debt is 12% and the debt obligation to be paid in 6 constant total yearly payment of interest and principal. The company’s tax rate is 40% and the minimum acceptable rate of return is 15% for total cash flows. On the basis of equity cash flows pls determine if the additional production line is viable? (Ignore investment tax credit and working capital)7) , Emkay, Inc. is considering an investment in a new production equipment to boost its revenue. For this new investment, the following data apply: Purchase price = $900,000 $360,000 from company funds and $540,000 from a loan} Useful Life: 4 years Depreciation: MACRS-GDS 3-year property Effective tax rate: 35% Estimated salvage: $90,000 Estimated annual O&M costs: $48,000 Estimated new annual revenue: $360,000 Conditions on loan: Nominal annual rate of 5% per year compounded annually. The loan is to be repaid over 3 years with equal annual payments. 3 a) Loan calculations - principal and interest payments. (Round off values to the nearest dollar) b)' EOY BT&LCF 0 2 Find the ATCF for each year of this investment (Round off values to the nearest dollar). MACRS- GDS Deduction 3 Loan Loan Interest Principal Payment Payment Taxable Income Tax ATCFBAM Co. is evaluating a project requiring a capital expenditure of $806,250. The project has an estimated life of four years and no salvage value. The estimated net income and net cash flow from the project are as follows: Year Net Income Net Cash Flow 1 $75,000 $285,000 2 102,000 290,000 3 109,500 190,000 4 36,000 125,000 $322,500 $890,000 The company's minimum desired rate of return is 12%. The present value of $1 at compound interest of 12% for Years 1 through 4 is 0.893, 0.797, 0.712, and 0.636, respectively. Determine the following: a. The average rate of return on investment, including the effect of depreciation on the investment. % b. The net present value. Enter negative values as negative numbers.