Cirice Corporation is considering opening a branch in another state. The operating cash flow will be $154,200 a year. The project will require new equipmentcosting $601,000 that would be depreciated on a straight-line basis to zero over the 6-year life of the project. The equipment will have a market value of $183,000at the end of the project. The project requires an initial investment of $42,500 in net working capital, which will be recovered at the end of the project. The tax rateis 21 percent. What is the project's IRR?

Step 1:First find the After-tax salvage value:= 183,000 * ( 1 - 21%)= $144570 Step 2:= -601,000 -…

Answered: Cirice Corporation is considering…

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

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Keene, Inc. is considering a new five-year expansion project that requires an initial fixed asset investment of $3.0 million. The fixed asset will be depreciated using on a straight-line basis to zero over its five year life. The fixed asset will have a market value of $350,000 at the end of the project. The project requires an initial investment in net working capital of $325,000. The working capital will be recovered at the end of the project’s life. The project is estimated to generate $2,250,000 in annual sales, with costs of $750,000. The tax rate is 35 percent. What is the free cash flow in year 1 (FCF1) on this project? a. $1,575,000 b. $975,000 c. $900,000 d. $1,500,000 e. $1,185,000
The management of SARB Limited must choose between two projects to expand their business operations. The twoprojects are called Project FIC and Project PA. Each project requires an initial investment of R250 000. No scrap values are expected.You have been presented with the following information: PROJECT FICProject FIC has net cash inflows of R63000 for each of the five years of the projects lifespan. PROJECT PAProject PA is a five-year project with annual profit of R8000, R18000, R12000, R20000 and R7000 for years one to fiverespectively.The required rate of return is 15%. Depreciation is calculated using the straight-line method.Calculate Accounting Rate of Return of Project PA (answer rounded off to 2 decimal places)
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Down Under Boomerang, Inc., is considering a new 3-year expansion project that requires an initial fixed asset investment of $2.28 million. The fixed asset falls into the 3-year MACRS class (MACRS schedule). The project is estimated to generate $1,750,000 in annual sales, with costs of $652,000. The project requires an initial investment in net working capital of $330,000, and the fixed asset will have a market value of $300,000 at the end of the project. a. If the tax rate is 23 percent, what is the project’s Year 0 net cash flow? Year 1? Year 2? Year 3? b. If the required return is 12 percent, what is the project's NPV?
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