Argyl Manufacturing is evaluating the possibility of expanding its operations. This expansion will require the purchase of land at a cost of $140,000. A new building will cost $110,000 and will be
Compute the initial net investment.
$
Compute the annual net cash flow from the project in year 25.
$
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- Caradoc Machine Shop is considering a four-year project to improve itsproduction efficiency. Buying a new machine press for $410,000 isestimated to result in $150,000 in annual pre-tax cost savings. The pressfalls into Class 8 for CCA purposes (CCA rate of 20% per year), and it willhave a salvage value at the end of the project of $55,000. The press alsorequires an initial investment in spare parts inventory of $20,000, alongwith an additional $3,100 in inventory for each succeeding year of theproject. If the shop’s tax rate is 35% and its discount rate is 9%.Calculate the NPV of this project. (Do not round your intermediatecalculations. Round the final answer to 2 decimal places. Omit $ sign inyour response.)NPV $ Should the company buy and install the machine press?arrow_forwardIvanhoe Company is considering buying a new farm that it plans to operate for 10 years. The farm will require an initial investment of $11.85 million. This investment will consist of $2.15 million for land and $9.70 million for trucks and other equipment. The land, all trucks, and all other equipment are expected to be sold at the end of 10 years for a price of $5.25 million, which is $2.00 million above book value. The farm is expected to produce revenue of $2.10 million each year, and annual cash flow from operations equals $1.90 million. The marginal tax rate is 25 percent, and the appropriate discount rate is 10 percent. Calculate the NPV of this investment? (Do not round factor values. Round final answer to 2 decimal places, e.g. 15.25.)arrow_forwardBaghibenarrow_forward
- Caspian Sea Drinks is considering the production of a diet drink. The expansion of the plant and the purchase of the equipment necessary to produce the diet drink will cost $28.00 million. The plant and equipment will be depreciated over 10 years to a book value of $1.00 million, and sold for that amount in year 10. Net working capital will increase by $1.30 million at the beginning of the project and will be recovered at the end. The new diet drink will produce revenues of $9.20 million per year and cost $1.77 million per year over the 10-year life of the project. Marketing estimates 12.00% of the buyers of the diet drink will be people who will switch from the regular drink. The marginal tax rate is 24.00%. The WACC is 12.00%. Find the NPV (net present value). Submit Answer format: Currency: Round to: 2 decimal places.arrow_forwardCaspian Sea Drinks is considering the production of a diet drink. The expansion of the plant and the purchase of the equipment necessary to produce the diet drink will cost $28.00 million. The plant and equipment will be depreciated over 10 years to a book value of $1.00 million, and sold for that amount in year 10. Net working capital will increase by $1.29 million at the beginning of the project and will be recovered at the end. The new diet drink will produce revenues of $9.46 million per year and cost $1.84 million per year over the 10-year life of the project. Marketing estimates 13.00% of the buyers of the diet drink will be people who will switch from the regular drink. The marginal tax rate is 22.00%. The WACC is 15.00%. Find the NPV (net present value). Submit Answer format: Currency: Round to: 2 decimal places.arrow_forwardDataPoint Engineering is considering the purchase of a new piece of equipment for $200,000. It has an eight-year midpoint of its asset depreciation range (ADR). It will require an additional initial investment of $100,000 in nondepreciable working capital. $25,000 of this investment will be recovered after the sixth year and will provide additional cash flow for that year. Income before depreciation and taxes for the next six are shown in the following table. Use Table 12–11, Table 12–12. Use Appendix B for an approximate answer but calculate your final answer using the formula and financial calculator methods. Need help with subpart D-1, previously asked question and was a-c were answered. Year Amount 1 $ 173,000 2 152,000 3 108,000 4 103,000 5 89,000 6 71,000 The tax rate is 25 percent. The cost of capital must be computed based on the following: Cost(aftertax) Weights Debt Kd 5.50 % 30 % Preferred stock Kp 9.20 10…arrow_forward
- A new solid waste treatment plant is to be constructed in Washington County. The initial installation will cost $35 million (M). After 10 years, minor repair and renovation (R&R) will occur at a cost of $14M will be required; after 20 years, a major R&R costing $20M will be required. The investment pattern will repeat every 20 years. Each year during the 20-year period, operating and maintenance (O&M) costs will occur. The first year, O&M costs will total $2M. Thereafter, O&M costs will increase at a compound rate of 4% per year. Based on a 4% MARR, what is the capitalized cost for the solid waste treatment plant?arrow_forwardUsing the information in the following table , what is the depreciation expense per year created by the project? Dunaway Industries is evaluating the idea of expanding their production facility in Cobb County The CFO gathered the following data. Dunaway Industries spent $ 500,000 researching other sites for their expansion. The equipment needed for the expansion will cost $ 25,600,000 fully installed . The equipment will be depreciated over 20 years to a salvage value of $ 1,000,000 . Dunaway Industries uses straight -line depreciation . If Dunaway accepts the project , the company will sell the equipment for salvage value ( i.e.$ 1,000,000 ) at the end of the life of the project . If Dunaway Industries adds the new equipment , sales are expected to increase by 17,400,000 and costs are expected to increase by $ 10,000,000 . The appropriate tax rate for Dunaway Industries is 30% The capital of the firm includes 70% of equity and 30% of debt . Dunaway Industries recently issued a bond…arrow_forwardMemanarrow_forward
- XYZ is evaluating a project that would require the purchase of a piece of equipment for $440,000 today. During year 1, the project is expected to have relevant revenue of $786,000, relevant costs of $201,000, and relevant depreciation of $132,000. XYZ would need to borrow $440,000 today to pay for the equipment and would need to make an interest payment of $33,000 to the bank in 1 year. Relevant net income for the project in year 1 is expected to be $337,000. What is the tax rate expected to be in year 1? A rate equal to or greater than 21.96% but less than 26.61% A rate less than 21.96% or a rate greater than 46.34% A rate equal to or greater than 31.02% but less than 38.39% A rate equal to or greater than 38.39% but less than 46.34% A rate equal to or greater than 26.61% but less than 31.02%arrow_forwardArgyl Manufacturing is evaluating the possibility of expanding its operations. This expansion will require the purchase of land at a cost of $150,000. A new building will cost $120,000 and will be depreciated on a straight-line basis over 10 years to a salvage value of $0. Actual land salvage at the end of 10 years is expected to be $200,000. The actual building salvage at the end of 10 years is expected to be $190,000. Equipment for the facility is expected to cost $260,000. Installation costs will be an additional $20,000 and shipping costs will be $13,000. This equipment will be depreciated as a 7-year MACRS asset. Actual estimated salvage at the end of 10 years is $0. The project will require net working capital of $75,000 initially (year 0), an additional $40,000 at the end of year 1, and an additional $40,000 at the end of year 2. The project is expected to generate increased EBIT (operating income) for the firm of $110,000 during year 1. Annual EBIT is expected to grow at a rate…arrow_forwardRearden Metals is considering opening a strip mining operation to provide some of the raw materials needed in producing Rearden metal. The initial purchase of the land and the associated costs of opening up mining operations will cost $100 million today. The mine is expected to generate $16 million worth of ore per year for the next 12 years. At the end of the 12th year Rearden will need to spend $20 million to restore the land to its original pristine nature appearance. The number of potential IRRs that exist for Rearden's mining operation is equal to: O A. 2 OB. 1 O C. 12 O D. 0 Carrow_forward
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