Courtney Limited has capital project opportunities each of which would require an initial investment of $400,000. Details for each opportunity are shown below. Investment in manufacturing equipment Investment in working capital Net annual cash inflows Life of the project CCA Investment 1 $400,000 Investment 2 $100,000 $400,000 $100,000 12 Years 30% 12 Years The robotic equipment would have a salvage value of $75,000 in 12 years. The equipment would be depreciated over 12 years. At the end of 12 years, the investment in working capital would be released for use elsewhere. The company requires an after-tax return of 12% on all investments. The tax rate is 30%. Required: Compute the net present value of each investment project. (Hint: Use Microsoft Excel to calculate the discount factor(s).) (Do not round
Courtney Limited has capital project opportunities each of which would require an initial investment of $400,000. Details for each opportunity are shown below. Investment in manufacturing equipment Investment in working capital Net annual cash inflows Life of the project CCA Investment 1 $400,000 Investment 2 $100,000 $400,000 $100,000 12 Years 30% 12 Years The robotic equipment would have a salvage value of $75,000 in 12 years. The equipment would be depreciated over 12 years. At the end of 12 years, the investment in working capital would be released for use elsewhere. The company requires an after-tax return of 12% on all investments. The tax rate is 30%. Required: Compute the net present value of each investment project. (Hint: Use Microsoft Excel to calculate the discount factor(s).) (Do not round
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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Transcribed Image Text:Courtney Limited has capital project opportunities each of which would require an initial investment of $400,000. Details for each
opportunity are shown below:
Investment in manufacturing equipment
Investment 1
$400,000
Investment 2
Investment in working capital
Net annual cash inflows
$100,000
$400,000
$100,000
Life of the project
CCA
12 Years
30%
12 Years
ces
The robotic equipment would have a salvage value of $75,000 in 12 years. The equipment would be depreciated over 12 years. At the
end of 12 years, the investment in working capital would be released for use elsewhere. The company requires an after-tax return of
12% on all investments. The tax rate is 30%.
Required:
Compute the net present value of each investment project. (Hint Use Microsoft Excel to calculate the discount factor(s).) (Do not round
intermediate calculations and PV factor. Round the final answers to the nearest whole dollar.)
Investment 1
Investment 2
Net present
value
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