Essentials Of Investments
11th Edition
ISBN: 9781260013924
Author: Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher: Mcgraw-hill Education,
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Esfandairi Enterprises is considering a new three-year expansion project that requires an initial fixed asset investment of $2.18 million. The fixed asset will be
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- Gateway Communications is considering a project with an initial fixed assets cost of $1.52 million that will be depreciated straight-line to a zero book value over the 9-year life of the project. At the end of the project the equipment will be sold for an estimated $243,000. The project will not change sales but will reduce operating costs by $405,000 per year. The tax rate is 34 percent and the required return is 11.8 percent. The project will require $53,500 in net working capital, which will be recouped when the project ends. What is the project's NPV?arrow_forwardEsfandairi Enterprises is considering a new 3 - year expansion project that requires an initial fixed asset investment of $2.34 million. The fixed asset will be depreciated straight line to zero over its 3-year tax life, after which time it will be worthless. The project is estimated to generate $1, 740, 000 in annual sales, with costs of $650,000. The tax rate is 21 percent and the required return is 11 percent. What is the project's NPV?arrow_forwardQuestion 1 All else held constant, which of the following would make the put option on the common stock more valuable? A lower exercise price Stock price drops Stock price volatility reducesarrow_forward
- Hubrey Home Inc. is considering a new three-year expansion project that requires an initial fixed asset investment of $3.3 million. The fixed asset falls into Class 10 for tax purposes (CCA rate of 30% per year), and at the end of the three years can be sold for a salvage value equal to its UCC. The project is estimated to generate $2,590,000 in annual sales, with costs of $820,000. If the tax rate is 35%, what is the OCF for each year of this project? (Enter the answers in dollars. Do not round your intermediate calculations. Round the final answers to 2 decimal places. Omit $ sign in your response.) OCF1 OCF2 OCF3 ta ta ta $ $ $arrow_forwardA company is considering a new 3-year expansion project that requires an initial fixed asset investment of $2.18 million. The fixed asset will be depreciated straight-line to zero over its 3-year tax life. The project is estimated to generate $1,730,000 in annual sales, costing $640,000. The project requires an initial investment in net working capital of $290,000, and the fixed asset will have a market value of $240,000 at the end of the project. a. If the tax rate is 24 percent, what is the project’s Year 0 net cash flow? Year 1? Year 2? Year 3? (Do not round intermediate calculations) b. If the required return is 12 percent, what is the project's NPV? Please use excel and show the equations used. Thanksarrow_forwardEsfandairi Enterprises is considering a new three-year expansion project that requires an initial fixed asset investment of $2.29 million. The fixed asset will be depreciated straight-line to zero over its three-year tax life. The project is estimated to generate $1,790,000 in annual sales, with costs of $700,000. The project requires an initial investment in net working capital of $410,000, and the fixed asset will have a market value of $420,000 at the end of the project. a. If the tax rate is 21 percent, what is the project's Year O net cash flow? Year 1? Year 2? Year 3? (A negative answer should be indicated by a minus sign. Do not round intermediate calculations and enter your answers in dollars, not millions of dollars, e.g., 1,234,567.) b. If the required return is 12 percent, what is the project's NPV? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.) a. Year 0 cash flow a. Year 1 cash flow a. Year 2 cash flow a. Year 3 cash flow…arrow_forward
- A firm is considering a new seven-year expansion project with an initial fixed asset investment of $3.9 million. The fixed asset will be depreciated straight-line to zero over its seven-year tax life, after which time it will be worthless. No bonus depreciation will be taken. The project is estimated to generate $2,479,000 in annual sales, with costs of $791,000. The tax rate is 20 percent and the required return is 7.2 percent. What is the net present value of this project? Instruction: Enter your response rounded to two decimal places.arrow_forwardEsfandairi Enterprises is considering a new three-year expansion project that requires an initial fixed asset investment of $2.18 million. The fixed asset will be depreciated straight- line to zero over its three-year tax life, after which time it will be worthless. The project is estimated to generate $1.645 million in annual sales, with costs of $610,000. The project requires an initial investment in net working capital of $250,000, and the fixed asset will have a market value of $180,000 at the end of the project. The tax rate is 21 percent. a. What is the project's Year O net cash flow? Year 1? Year 2? Year 3? (A negative answer should be indicated by a minus sign. Do not round intermediate calculations and enter your answers in dollars, not millions of dollars, e.g., 1,234,567.) b. If the required return is 12 percent, what is the project's NPV? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.) a. Year 0 cash flow a. Year 1 cash flow…arrow_forwardHubrey Home Inc. is considering a new three-year expansion project that requires an initial fixed asset investment of $3.7 million. The fixed asset falls into Class 10 for tax purposes (CCA rate of 30% per year), and at the end of the three years can be sold for a salvage value equal to its UCC. The project is estimated to generate $2,630,000 in annual sales, with costs of $832,000. If the tax rate is 35%, what is the OCF for each year of this project? (Enter the answers in dollars. Do not round your intermediate calculations. Round the final answers to 2 decimal places. Omit $ sign in your response.) OCF1 $ OCF2 $ OCF3 $arrow_forward
- Esfandiri Enterprises is considering a new three year expansion project that requires an initial fixed asset investment of $2.18 million. The fixed asset will be depreciated straight-line to zero over its three year tax life, after which time it will be worthless. The Project is estimated to generate $1.645 million in annual sales with costs of $610,000. If the tax rate is 27.00% what is the OCF per year (OCF will be the same for the three years) for this project? Group of answer choices $650,058.06 $715,063.86 $786,570.25 $865,227.27 $951,750.00arrow_forwardEsfandairi Enterprises is considering a new three-year expansion project that requires an initial fixed asset investment of $2,350,000. The fixed asset will be depreciated straight-line to zero over its three-year tax life. The project is estimated to generate $2,860,000 in annual sales, with costs of $1,850,000. The project requires an initial investment in net working capital of $176,000, and the fixed asset will have a market value of $211,000 at the end of the project. Assume that the tax rate 25 percent and the required return on the project is 11 percent. What are the net cash flows of the project each year? What is the NPV of the project? Give typing answer with explanation and conclusionarrow_forwardEsfandairi Enterprises is considering a new three-year expansion project that requires an initial fixed asset investment of $2,300,000. The fixed asset will be depreciated straight-line to zero over its three-year tax life, after which time it will be worthless. The project is estimated to generate $2,890,000 in annual sales, with costs of $1,910,000. Assume the tax rate is 21 percent and the required return on the project is 12 percent. What is the project's NPV? Note: A negative answer should be indicated by a minus sign. Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16. Net present valuearrow_forward
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