Vijay Problem 10-50 Project Evaluation (LO2)Aylmer-in-You (AIY) Inc. projects unit sales for a new opera tenor emulation implant as follows:Year12345Unit Sales110,000126,000137,000159,00098,000Production of the implants will require $820,000 in net working capital to start and additional net working capital investments eachyear equal to 25% of the projected sales increase for the following year. (Because sales are expected to fall in Year 5, there is no NWCcash flow occurring for Year 4.) Total fixed costs are $195,000 per year, variable production costs are $287 per unit, and the units arepriced at $400 each. The equipment needed to begin production has an installed cost of $22.5 million. Because the implants areintended for professional singers, this equipment is considered industrial machinery and thus falls into Class 8 for tax purposes (20%).In five years, this equipment can be sold for about 30% of its acquisition cost. AIY is in the 40% marginal tax bracket and has a requiredreturn on all its projects of 22%.Based on these preliminary project estimates, what is the NPV of the project? What is the IRR? (Enter your answer in dollars, not inmillions of dollars, i.e. 1,234,567. Do not round your intermediate calculations. Round the final answers to 2 decimal places. Omit$ sign in your response.)NPVIRR$응

Capital budgeting means the systematic evaluation and selection of long-term investment initiatives.…

Answered: Aylmer-in-You (AIY) Inc. projects unit…

EBK CONTEMPORARY FINANCIAL MANAGEMENT

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter9: Capital Budgeting And Cash Flow Analysis

Section: Chapter Questions

Problem 19P

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Problem 10-50 Project Evaluation (LO2) Aylmer-in-You (AIY) Inc. projects unit sales for a new opera tenor emulation implant as follows: Year Unit Sales 1 98,000 112,000 122,000 2 3 4 NPV IRR 5 142,000 87,000 Production of the implants will require $729,000 in net working capital to start and additional net working capital investments each year equal to 25% of the projected sales increase for the following year. (Because sales are expected to fall in Year 5, there is no NWC cash flow occurring for Year 4.) Total fixed costs are $174,000 per year, variable production costs are $320 per unit, and the units are priced at $360 each. The equipment needed to begin production has an installed cost of $7.0 million. Because the implants are intended for professional singers, this equipment is considered industrial machinery and thus falls into Class 8 for tax purposes (20%). In five years, this equipment can be sold for about 30% of its acquisition cost. AIY is in the 40% marginal tax bracket…
Problem 10-50 Project Evaluation (LO2) Aylmer-in-You (AIY) Inc. projects unit sales for a new opera tenor emulation implant as follows: Year 1 Unit Sales 113,000 2 3 4 5 129,000 140,000 162,000 101,000 es Production of the implants will require $844,000 in net working capital to start and additional net working capital investments each year equal to 20% of the projected sales increase for the following year. (Because sales are expected to fall in Year 5, there is no NWC cash flow occurring for Year 4.) Total fixed costs are $198,000 per year, variable production costs are $278 per unit, and the units are priced at $400 each. The equipment needed to begin production has an installed cost of $25.5 million. Because the implants are intended for professional singers, this equipment is considered industrial machinery and thus falls into Class 8 for tax purposes (20%). In five years, this equipment can be sold for about 25% of its acquisition cost. AIY is in the 40% marginal tax bracket and…
PROBLEM 2 fol Acoustics, Inc. (AA) projects unit sales for a new seven-octave voice emulation implantas follows: Year 1 2 3 4 5 Production of the implants will require $2,350,000 in net working capital to start and additional net working capital investments each year equal to 25 percent of the projected sales increase for the following year. Total fixed costs are $1,490,000 per year, variable production costs are $239 per unit, and the units are priced at $359 each. The equipment needed to begin production has an installed cost of $30,000,000. Because the implants are intended for professional singers, this equipment is considered industrial machinery and thus qualifies as seven-year MACRS (MACRS Table) property. In five years, this equipment can be sold for about 20 percent of its acquisition cost. AAI is in the 40 percent marginal tax bracket and has a required return on all its projects of 16 percent. Unit Sales 115,000 134,000 122,000 105,000 91,000 What are operating cash flows,…
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…
Question Content Area There are two projects under consideration by the Rainbow factory. Each of the projects will require an initial investment of $36,000 and is expected to generate the following cash flows: First Year Second Year Third Year Total Alpha Project $32,500 $22,000 $4,500 $59,000 Beta Project 8,000 23,000 28,000 59,000 (Click here to see present value and future value tables) A. If the discount rate is 15%, compute the NPV of each project. Round your present value factor to three decimal places and final answer to answer to 2 decimal places. Alpha Project $fill in the blank 1 Beta Project $fill in the blank 2 B. Which project should be recommended. .
Question 1 Spacevoyage Inc. is considering the installation of a new experimental laboratory which requires a key equipment costing $5,000,000. It is expected that the equipment will generate important experimental material worth $2,000,000 for each of the next 5 years. In the 6th year, the equipment will need an upgrade costing $2,500,000. Required return for this project is 15%. a) Which capital budgeting method between NPV and IRR will be most suitable for arriving at a decision on whether or not to get the equipment installed? Briefly explain your reasons. (50-75 words) b) Should the new equipment be installed? Support your answer with relevant computation. Question 2 While computing the cost of equity using the formula , rs=D1P0+grs=D1P0+g, we do not make any adjustment to express the cost of equity on an after-tax basis whereas while computing the cost of debt, a tax adjustment is required to arrive at after-tax cost of debt. Why is this so? Explain briefly. (75-150 words)
Problem 9-34 Project Evaluation (LO4) The following table presents sales forecasts for Golden Gelt Giftware. The unit price is $40. The unit cost of the giftware is $25. Year 1 2 3 4 Thereafter Unit Sales 25,000 45,000 29,000 5,000 0 It is expected that net working capital will amount to 20% of sales in the following year. For example, the store will need an initial (Year O) investment in working capital of .20 × 25,000 × $40 = $200,000. Plant and equipment necessary to establish the giftware business will require an additional investment of $275,000. This investment will depreciate on the MACRS schedule over 3 years. After 4 years, the equipment will have an economic and book value of zero. The firm's tax rate is 30%. The discount rate is 20%. Use the MACRS depreciation schedule. a. What is the net present value of the project? Note: Do not round intermediate calculations. Round your answer to the nearest whole dollar amount. a. Net present value b. Increase in NPV
Question Content Area There are two projects under consideration by the Rainbow factory. Each of the projects will require an initial investment of $35,000 and is expected to generate the following cash flows: First Year Second Year Third Year Total Alpha Project $31,500 $22,500 $5,000 $59,000 Beta Project 7,000 23,000 28,000 58,000 (Click here to see present value and future value tables) A. If the discount rate is 12%, compute the NPV of each project. Round your present value factor to three decimal places and final answer to answer to 2 decimal places. Alpha Project $fill in the blank 1 Beta Project $fill in the blank 2 B. Which project should be recommended. .Please round off anwsers. Thank you
Two mutually exclusive investment alternatives for implementing an office automation plan in an engineering design firm are being considered. If the firm's MARR is 10% per year, which alternative should be selected? Compare the alternatives shown below on the basis of Incremental Analysis. Investment A Investment B Capital Investment, $ 920,000 660,000 Annual Expenses, S/ yr. 167,000 133,000 Salvage value, $ 410,000 330,000 Life, years 10 10 What is the Incremental NPV at 7%? (Round off the final answer to whole number value) What is the Incremental NPV at 13%? (Round off the final answer to whole number value)
Problem 9-19 Project Evaluation (LO2, LO3) United Pigpen is considering a proposal to manufacture high-protein hog feed. The project would make use of an existing warehouse, which is currently rented out to a neighboring firm. The next year's rental charge on the warehouse is $130,000, and thereafter, the rent is expected to grow in line with inflation at 4% a year. In addition to using the warehouse, the proposal envisages an investment in plant and equipment of $1.38 million. This could be depreciated for tax purposes straight-line over 10 years. However, Pigpen expects to terminate the project at the end of 8 years and to resell the plant and equipment in year 8 for $460,000. Finally, the project requires an immediate investment in working capital of $380,000. Thereafter, working capital is forecasted to be 10% of sales in each of years 1 through 7. Year 1 sales of hog feed are expected to be $4.80 million, and thereafter, sales are forecasted to grow by 5% a year, slightly faster…
Problem 9-19 Project Evaluation (LO2, LO3) United Pigpen is considering a proposal to manufacture high-protein hog feed. The project would make use of an existing warehouse, which is currently rented out to a neighboring firm. The next year's rental charge on the warehouse is $180,000, and thereafter, the rent is expected to grow in line with inflation at 4% a year. In addition to using the warehouse, the proposal envisages an investment in plant and equipment of $1.68 million. This could be depreciated for tax purposes straight-line over 10 years. However, Pigpen expects to terminate the project at the end of 8 years and to resell the plant and equipment in year 8 for $560,000. Finally, the project requires an immediate investment in working capital of $430,000. Thereafter, working capital is forecasted to be 10% of sales in each of years 1 through 7. Year 1 sales of hog feed are expected to be $5.80 million, and thereafter, sales are forecasted to grow by 5% a year, slightly faster…
Problem 9-19 Project Evaluation (LO2, LO3) United Pigpen is considering a proposal to manufacture high-protein hog feed. The project would require use of an existing warehouse, which is currently rented out to a neighboring firm. The next year's rental charge on the warehouse is $185,000, and thereafter, the rent is expected to grow in line with Inflation at 4% a year. In addition to using the warehouse, the proposal envisages an Investment in plant and equipment of $1.71 million. This could be depreciated for tax purposes straight-line over 10 years. However, Pigpen expects to terminate the project at the end of 8 years and to resell the plant and equipment in year 8 for $570,000. Finally, the project requires an immediate Investment in working capital of $435,000. Thereafter, working capital is forecasted to be 10% of sales In each of years 1 through 7. Working capital will be run down to zero in year 8 when the project shuts down. Year 1 sales of hog feed are expected to be $5.90…

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