Benford Inc. is planning to open a new sporting goods store in a suburban mall. Benford will lease the needed space in the mall. Equipment and fixtures for the store w cost $250,000 and be depreciated to $0 over a 5-year period on a straight-line basis. The new store will require Benford to increase its net working capital by $100,000 time 0. First-year sales are expected to be $0.7 million and to increase at an annual rate of 6 percent over the expected 10-year life of the store. Operating expenses (includin lease payments but excluding depreciation) are projected to be $650,000 during the first year and to increase at a 5 percent annual rate. The salvage value of the stor equipment and fixtures is anticipated to be $11,000 at the end of 10 years. Benford's marginal tax rate is 40 percent. a. Calculate the store's net present value, using an 18 percent required return. Use Table II to answer the question. Round your answer to the nearest dollar. 68997 b. Should Benford accept the project? $ No c. Calculate the store's internal rate of return. Round your answer to one decimal place. 24.1 *% d. Calculate the store's profitability index. Round your answer to two decimal places. 1.28

Benford Inc. is planning to open a new sporting goods store in a suburban mall. Benford will lease the needed space in the mall. Equipment and fixtures for the store w cost $250,000 and be depreciated to $0 over a 5-year period on a straight-line basis. The new store will require Benford to increase its net working capital by $100,000 time 0. First-year sales are expected to be $0.7 million and to increase at an annual rate of 6 percent over the expected 10-year life of the store. Operating expenses (includin lease payments but excluding depreciation) are projected to be $650,000 during the first year and to increase at a 5 percent annual rate. The salvage value of the stor equipment and fixtures is anticipated to be $11,000 at the end of 10 years. Benford's marginal tax rate is 40 percent. a. Calculate the store's net present value, using an 18 percent required return. Use Table II to answer the question. Round your answer to the nearest dollar. 68997 b. Should Benford accept the project? $ No c. Calculate the store's internal rate of return. Round your answer to one decimal place. 24.1 *% d. Calculate the store's profitability index. Round your answer to two decimal places. 1.28

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

See similar textbooks

Similar questions

The Ocean City water park is considering the purchase of a new log flume ride. The cost to purchase the equipment is $8,000,000, and it will cost an additional $475,000 to have it installed. The equipment has an expected life of 6 years, and it will be depreciated using a MACRS 7-year class life. Management expects to run about 150 rides per day, with each ride averaging 35 riders. The season will last for 120 days per year. In the first year, the ticket price per rider is expected to be $5.25, and it will be increased by 4% per year. The variable cost per rider will be $1.65, and total fixed costs will be $525,000 per year. After six years, the ride will be dismantled at a cost of $245,000 and the parts will be sold for $600,000. The cost of capital is 8.5%, and its marginal tax rate is 25%. Calculate the NPV, IRR, and MIRR of the new equipment. Is the project acceptable?
Concord Pacific is considering purchasing a small residential building in Abbotsford that will cost $1,700,000 and will require $120,000 in renovations immediately. Revenue from rent is estimated to be $500,000 a year. Expenses are estimated to be $200,000 a year. They plant to keep the building for 6 years and estimates they will be able to sell the building for $2,200,000 at the end of 6 years. Assume expenses occur at the beginning of the year and revenue at the end of the year. Concord wants to earn at least 18% per year. Concord has calculated the NPV of this project is -$81,683.54. To encourage businesses to invest, the provincial government is considering giving Concord a one-time tax credit payable at the end of 2 years. How large of a tax credit does Concord require if they want to earn at a minimum of 18% per year?
Acompany is evaluating the addition of equipment to its presentoperations. They need to purchase equipment for $160,000. The five year MACRS GDS Recovery Method is appropriate forthe investment and the total tax rate (federal plus state) is 40%. Gross revenue is expected to be $30,000/year while maintenance costs are expected to be $5,000/year. It is expected that the operation will be shut down at the end of the fourth year with a salvage value of $20,000.1-Prepare a table showing your development of the ATCF's.
What would the effect of the failure in the ratio measurement?
Firm Z has invested $4 million in marketing campaign to assess the demand for the product Minish. This product will be in the market next year and will last five years. Revenues are projected to be $50 million per year along with expenses of $20 million. The firm spends $15 million immediately on equipment that will be depreciated using MACRS depreciation to zero. Additionally, it will use some fully depreciated existing equipment that has a market value of $4 million. Finally, Minish will have no incremental cash or inventory requirements (products will be shipped directly from the contract manufacturer to customers). But, receivables are expected to account for 15% of annual sales. Payables are expected to be 15% of the annual cost of goods sold (COGS) between year 1 and year 4. All accounts payables and receivables will be settled at the end of year 5. Based on this information and WACC in the first part of the question, find the NPV of the project. Identify the IRR of the…
The Ocean City water park is considering the purchase of a new log flume ride. The cost to purchase the equipment is $8,000,000, and it will cost an additional $475,000 to have it installed. The equipment has an expected life of 6 years, and it will be depreciated using a MACRS 7-year class life. Management expects to run about 150 rides per day, with each ride averaging 35 riders. The season will last for 120 days per year. In the first year, the ticket price per rider is expected to be $5.25, and it will be increased by 4% per year. The variable cost per rider will be $1.65, and total fixed costs will be $525,000 per year. After six years, the ride will be dismantled at a cost of $245,000 and the parts will be sold for $600,000. The cost of capital is 8.5%, and its marginal tax rate is 25%. a. Calculate the initial outlay, annual after-tax cash flow for each year, and the terminal cash flow.
RealTurf is considering purchasing an automatic sprinkler system for its sod farm by borrowing the entire $30,000 purchase price. The loan would be repaid with four equal annual payments at an interest rate of 12%/year. It is anticipated that the sprinkler system would be used for 9 years and then sold for a salvage value of $2,000. Annual operating and maintenance expenses for the system over the 9-year life are estimated to be $9,000 per year. If the new system is purchased, cost savings of $15,000 per year will be realized over the present manual watering system. RealTurf uses a MARR of 15%/year for economic decision making. Based on a present worth analysis, is the purchase of the new sprinkler system economically attractive?
Acompany is evaluating the addition of equipment to its presentoperations. They need to purchase equipment for $160,000. The five year MACRS GDS Recovery Method is appropriate forthe investment and the total tax rate (federal plus state) is 40%. Gross revenue is expected to be $30,000/year while maintenance costs are expected to be $5,000/year. It is expected that the operation will be shut down at the end of the fourth year with a salvage value of $20,000. 2-Draw a BTCFD
Your firm is considering an investment in luxury cars for its livery service between Oxford and CVG airport. The purchase price of the cars is $300,000 and the service is expected to contribute gross profit of $150,000 per year (excluding depreciation) for 3 years. The vehicles will be fully depreciated using straight-line depreciation over 3 years. The cars will be sold at the end of the third year for $75,000. There is no expected impact on NWC, the tax rate is 21%, and the WACC is 10%. What is the NPV of the investment?
Halloween Costumes Unlimited is considering a new 3-year store expansion project that requires an initial fixed asset investment of $1.7 million. The fixed asset falls into the 3- year MACRS class (MACRS Table) and will have a market value of $134,400 after 3 years. The project requires an initial investment in net working capital of $192,000. The project is estimated to generate $1,536,000 in annual sales, with costs of $614,400. The tax rate is 34 percent and the required return on the project is 16 percent. (Do not round your intermediate calculations.) Required: (a)What is the project's year O net cash flow? (Click to select) V (b)What is the project's year 1 net cash flow? (Click to select) · V (c) What is the project's year 2 net cash flow? (Click to select) (d)What is the project's year 3 net cash flow? (Click to select) (e)What is the NPV? (Click to select) ✓
The Ocean City water park is considering the purchase of a new log flume ride. The cost to purchase the equipment is $8,000,000, and it will cost an additional $475,000 to have it installed. The equipment has an expected life of 6 years, and it will be depreciated using a MACRS 7-year class life. Management expects to run about 150 rides per day, with each ride averaging 35 riders. The season will last for 120 days per year. In the first year, the ticket price per rider is expected to be $5.25, and it will be increased by 4% per year. The variable cost per rider will be $1.65, and total fixed costs will be $525,000 per year. After six years, the ride will be dismantled at a cost of $245,000 and the parts will be sold for $600,000. The cost of capital is 8.5%, and its marginal tax rate is 25%. Using Goal Seek, calculate the minimum ticket price that must be charged in the first year in order to make the project acceptable.
On October 1, Midway Distribution Company is considering leasing a building and purchasing the necessary equipment to operate a retail store. Alternatively, the company could use the funds to invest in $150,400 of 5% U.S. Treasury bonds that mature in 16 years. The bonds could be purchased at face value. The following data have been assembled: Cost of store equipment $150,400 Life of store equipment 16 years Estimated residual value of store equipment $19,000 Yearly costs to operate the store, excluding depreciation of store equipment $56,900 Yearly expected revenues—years 1-8 $74,100 Yearly expected revenues—years 9-16 $70,800 Required: Question Content Area 1. Prepare a differential analysis as of October 1 to determine whether to Operate Retail Store (Alternative 1) or Invest in Bonds (Alternative 2). If an amount is zero, enter zero "0". For those boxes in which you must enter subtracted or negative numbers use a minus sign. Differential…

SEE MORE QUESTIONS

Recommended textbooks for you

Essentials Of Investments

Finance

ISBN:

9781260013924

Author:

Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Publisher:

Mcgraw-hill Education,

FUNDAMENTALS OF CORPORATE FINANCE

Finance

ISBN:

9781260013962

Author:

BREALEY

Publisher:

RENT MCG

Financial Management: Theory & Practice

Finance

ISBN:

9781337909730

Author:

Brigham

Publisher:

Cengage

Foundations Of Finance

Finance

ISBN:

9780134897264

Author:

KEOWN, Arthur J., Martin, John D., PETTY, J. William

Publisher:

Pearson,

Fundamentals of Financial Management (MindTap Cou…

Finance

ISBN:

9781337395250

Author:

Eugene F. Brigham, Joel F. Houston

Publisher:

Cengage Learning

Corporate Finance (The Mcgraw-hill/Irwin Series i…

Finance

ISBN:

9780077861759

Author:

Stephen A. Ross Franco Modigliani Professor of Financial Economics Professor, Randolph W Westerfield Robert R. Dockson Deans Chair in Bus. Admin., Jeffrey Jaffe, Bradford D Jordan Professor

Publisher:

McGraw-Hill Education

Essentials Of Investments

Finance

ISBN:

9781260013924

Author:

Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Publisher:

Mcgraw-hill Education,

FUNDAMENTALS OF CORPORATE FINANCE

Finance

ISBN:

9781260013962

Author:

BREALEY

Publisher:

RENT MCG

Financial Management: Theory & Practice

Finance

ISBN:

9781337909730

Author:

Brigham

Publisher:

Cengage

Foundations Of Finance

Finance

ISBN:

9780134897264

Author:

KEOWN, Arthur J., Martin, John D., PETTY, J. William

Publisher:

Pearson,

Fundamentals of Financial Management (MindTap Cou…

Finance

ISBN:

9781337395250

Author:

Eugene F. Brigham, Joel F. Houston

Publisher:

Cengage Learning

Corporate Finance (The Mcgraw-hill/Irwin Series i…

Finance

ISBN:

9780077861759

Author:

Stephen A. Ross Franco Modigliani Professor of Financial Economics Professor, Randolph W Westerfield Robert R. Dockson Deans Chair in Bus. Admin., Jeffrey Jaffe, Bradford D Jordan Professor

Publisher:

McGraw-Hill Education

SEE MORE TEXTBOOKS