Crossroad Corporation is trying to decide whether to invest to automate a production line. If the projectis accepted, labor costs will decrease by $614,000 per year. However, other cash operating expenses willincrease by $147,000 per year. The equipment will cost $405,000 and is depreciable over 13 years usingsimplified straight line to a zero salvage value. Crossroad will invest $46,000 in net working capital atinstallation. The firm has a marginal tax rate of 34%. Calculate the firm's annual cash flows associatedwith the new project.Set your calculator to 4 decimal places and round to a whole number at the end. Do not enter the dollarsign. For example, if your answer is 1,000, enter it as 1000.

Annual cash flow is the amount earned by the investor from the project. It is the net amount which…

Answered: Crossroad Corporation is trying to…

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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Dog Up! Franks is looking at a new sausage system with an installed cost of $500,000. This cost will be depreciated straight-line to zero over the project's five-year life, at the end of which the sausage system can be scrapped for $74,000. The sausage system will save the firm $180,000 per year in pretax operating costs and the system requires an initial investment in net working capital of $33,000. If the tax rate is 24 percent and the discount rate is 9 percent, what is the NPV of this project? Note: Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16. Answer is complete but not entirely correct. S 119,822.41 NPV
Crossroad Corporation is trying to decide whether to invest to automate a production line. If the project is accepted, labor costs will decrease by $165,000 per year. However, other cash operating expenses will increase by $86,000 per year. The equipment will cost $260,000 and is depreciable over 10 years using simplified straight line to a zero salvage value. Crossroad will invest $10,000 in net working capital at installation. The firm has a marginal tax rate of 34%. Calculate the firm's annual cash flows associated with the new project.
Pivot, Inc. is currently valuing a new project that has the average risk of its investment projects. The project requires upfront R&D and marketing expenses of $10 million and a $30 million investment in equipment. The equipment will be obsolete in 3 years and will be depreciated using the straight-line method over that period. For each year over the next 3 years, the project offers annual sales of $100 million, has annual manufacturing costs of $30 million, and annual operating expenses of $10 million. Further, the project requires no net working capital in year 0, and $2.0 million in net working capital in each year from year 1 to year 2 and no net working capital in year 3. Beyond year 3, the project's free cash flows are expected to growth at an annual rate of 1%. Pivot currently has 20 million outstanding shares with its stock price of $30 per share, $320 million in debt, $20 million in excess cash, the cost of debt of 5%, and the cost of equity of 10%, and the corporate tax rate…
Dog Up! Franks is looking at a new sausage system with an installed cost of $863,006. This cost will be depreciated straight-line to 68,640 over the project's 7-year life, at the end of which the sausage system can be scrapped for $130,815. The sausage system will save the firm $249,240 per year in pretax operating costs, and the system requires an initial investment in net working capital of $61,737. If the tax rate is 0.29 and the discount rate is 0.1, what is the total cash flow in year 7? (Make sure you enter the number with the appropriate +/- sign)
Dog Up! Franks is looking at a new sausage system with an installed cost of $440,000. This cost will be depreciated straight-line to zero over the project's five-year life, at the end of which the sausage system can be scrapped for $62,000. The sausage system will save the firm $250,000 per year in pretax operating costs, and the system requires an initial investment in net working capital of $21,000. If the tax rate is 34 percent and the discount rate is 10 percent, what is the NPV of this project? (Do not round intermediate calculations and round your final answer to 2 decimal places, e.g., 32.16.) NPV eBook & Resources eBook: 10.6. Some Special Cases of Discounted Cash Flow Analysis Check my work
Malkind Hardware is adding a new product line that will require an investment of $1,454,000. Managers estimate that this investment will have a 10-year life and generate net cash inflows of $300,000 the first year, $270,000 the second year, and $250,000 each year thereafter for eight years. Assume the project has no residual value. Compute the ARR for the investment. Round to two places. Select the formula, then enter the amounts to calculate the ARR (accounting rate of return) for the new product line. (Round ARR to the nearest hundredth percent [two decimal places], X.XX%) ARR
XYZ Corporation is studying a project that would have a ten-year life and would require a $450,000 investment in equipment which has no salvage value. The project would provide net operating income each year as follows for the life of the project (Ignore income taxes.): Sales $ 500,000 Less cash variable expenses 200,000 Less cash fixed expenses 150,000 Less depreciation expenses 45,000 Net operating income $ 105,000 The company's required rate of return is 12%. Compute the payback period for this project Enter your answer
We assume that the company you selected is considering a new project. The project has 8 years’ life. This project requires initial investment of $235 million to purchase the building, and purchase equipment, and $15 million for shipping & installation fee. The fixed assets (Total of 235+15= $250 M) fall in the 7-year MACRS class. The salvage value of fixed assets is $38 million. The number of units of the new product expected to be sold in the first year is 900,000 and expected to grow at annual growth rate of 9%. The sales price is $265 per unit and the variable cost is $174 per unit in the first year, but they should be adjusted accordingly based on the estimated annualized inflation rate of 2.8%. Therequired net operating working capital (NOWC) for each year is 15% of sales for that year. The company is in the 21% tax bracket. The company’s optimal capital structure is 65% equity and 35 debt financing. Assume a WACC of 7 % based on target capital structure of this firm. (This…
Investment Project B will require an initial investment of $430,000 and is expected to generate after-tax net cash inflows of $118,500 each year over the project's five-year life. Management has established a hurdle rate of 10% on similar investments. What is the investment's expected internal rate of return and should the company invest in the project? Period 1 2 3 4 5 10% Interest Rate Factors Present Value of Present Value of an Annuity of $1 $1 0.909 0.826 0.751 0.683 0.621 0.909 1.736 2.487 3.170 3.791 Greater than the 10% hurdle; invest in the project O Less than the 10% hurdle; reject the project O Unable to determine the internal rate of return with the information provided O Equal to the 10% hurdle; indifferent about investing in the project
Dog Up! Franks is looking at a new sausage system with an installed cost of $611,710. This cost will be depreciated straight-line to 26,157 over the project's 7-year life, at the end of which the sausage system can be scrapped for $91,339. The sausage system will save the firm $182,535 per year in pretax operating costs, and the system requires an initial investment in net working capital of $66,568. If the tax rate is 0.2 and the discount rate is 0.11, what is the total cash flow in year 7? (Make sure you enter the number with the appropriate +/- sign)
Consider the following project of Hand Clapper, Incorporated. The company is considering a four-year project to manufacture clap-command garage door openers. This project requires an initial investment of $13.8 million that will be depreciated straight-line to zero over the project's life. An initial investment in net working capital of $585,000 is required to support spare parts inventory; this cost is fully recoverable whenever the project ends. The company believes it can generate $11.4 million in pretax revenues with $4.3 million in total pretax operating costs. The tax rate is 25 percent and the discount rate is 10 percent. The market value of the equipment over the life of the project is as follows: Market Value (millions) a. Year 1 $ 11.0 234 9.0 4.8 1.2 Assuming the company operates this project for four years, what is the NPV? (Do not round intermediate calculations and enter your answer in dollars, not millions, rounded to 2 decimal places, e.g., 1,234,567.89.) b-1. Compute…
Midwest Fabricators Inc. is considering an investment in equipment that will replace direct labor. The equipment has a cost of $101,000 with a $9,000 residual value and a ten-year life. The equipment will replace one employee who has an average wage of $21,230 per year. In addition, the equipment will have operating and energy costs of $4,880 per year. Determine the average rate of return on the equipment, giving effect to straight-line depreciation on the investment. If required, round to the nearest whole percent

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