Green & Company is considering investing in a robotics manufacturing line. Installation of the line will cost an estimated $15.9 million. This amount must be paid immediately even though construction will take three years to complete (years 0, 1, and 2). Year 3 will be spent testing the production line and, hence, it will not yield any positive cash flows. If the operation is very successful, the company can expect after-tax cash savings of $10.9 million per year in each of years 4 through 7. After reviewing the use of these systems with the management of other companies, Green's controller has concluded that the operation will most probably result in annual savings of $8.1 million per year for each of years 4 through 7. However, it is entirely possible that the savings could be as low as $3.9 million per year for each of years 4 through 7. The company uses a 12 percent discount rate. Use Exhibit A.8. Required: Compute the NPV under the three scenarios. Note: Round PV factor to 3 decimal places. Enter your answers in thousands of dollars, rounded to the nearest whole number. Negative amounts should be indicated by a minus sign. Net present value Best Case Expected Worst Case

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
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Exhibit A.8
Present Value of $1
16%
1% 2% 4% 5% 6% 8%
0.995 0.990 0.980 0.962 0.952 0.943 0.926
0.990 0.980 0.961 0.925 0.907 0.890 0.857
0.889 0.864 0.840 0.794
0.985 0.971 0.942
0.980 0.961 0.924
0.975 0.951 0.906
0.971
0.942 0.888
0.966
0.933 0.871
0.760
10%
12%
14% 15%
18%
20%
22% 24% 25% 30% 35%
40%
0.909 0.893 0.877 0.870 0.862 0.847 0.833 0.820 0.806 0.800 0.769 0.741 0.714
0.826 0.797 0.769 0.756 0.743 0.718 0.694 0.672 0.650 0.640 0.592 0.549 0.510
0.751 0.712 0.675 0.658 0.641 0.609 0.579 0.551 0.524 0.512 0.455 0.406 0.364
0.855 0.823 0.792 0.735 0.683 0.636 0.592 0.572 0.552 0.516 0.482 0.451 0.423 0.410 0.350 0.301 0.260
0.822 0.784 0.747 0.681 0.621 0.567 0.519 0.497 0.476 0.437 0.402 0.370 0.341 0.328 0.269 0.223 0.186
0.790 0.746 0.705 0.630 0.564 0.507 0.456 0.432 0.410 0.370 0.335 0.303 0.275 0.262 0.207 0.165 0.133
0.711 0.665
0.583 0.513 0.452
0.400
0.376 0.354 0.314 0.279
0.249 0.222 0.210 0.159 0.122 0.095
0.923 0.853 0.731 0.677 0.627 0.540 0.467 0.404 0.351 0.327 0.305 0.266 0.233 0.204 0.179 0.168 0.123 0.091 0.068
0.914 0.837 0.703 0.645 0.592 0.500 0.424 0.361 0.308 0.284 0.263 0.225 0.194 0.167 0.144 0.134 0.094 0.067 0.048
0.676 0.614 0.558 0.463 0.386 0.322 0.270 0.247 0.227 0.191 0.162 0.137 0.116 0.107 0.073 0.050 0.035
0.650
0.527 0.429 0.350 0.287 0.237 0.215 0.195 0.162 0.135 0.112 0.094 0.086 0.056 0.037 0.025
0.625
0.497 0.397 0.319 0.257 0.208 0.187 0.168 0.137 0.112 0.092 0.076 0.069 0.043 0.027 0.018
0.773 0.601 0.530 0.469 0.368 0.290 0.229 0.182 0.163 0.145 0.116 0.093 0.075 0.061 0.055 0.033 0.020 0.013
0.758 0.577 0.505 0.442 0.340 0.263 0.205
0.160
0.141 0.125 0.099
0.078 0.062 0.049 0.044
0.025 0.015
0.009
0.743 0.555 0.481 0.417 0.315 0.239 0.183 0.140 0.123 0.108 0.084 0.065 0.051 0.040 0.035 0.020 0.011 0.006
0.961
0.956
0.951 0.905 0.820
0.947 0.896 0.804
0.585
0.557
0.942 0.887 0.788
0.937
0.879
0.933
0.870
0.928
0.861
Year 1/2%
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
Transcribed Image Text:Exhibit A.8 Present Value of $1 16% 1% 2% 4% 5% 6% 8% 0.995 0.990 0.980 0.962 0.952 0.943 0.926 0.990 0.980 0.961 0.925 0.907 0.890 0.857 0.889 0.864 0.840 0.794 0.985 0.971 0.942 0.980 0.961 0.924 0.975 0.951 0.906 0.971 0.942 0.888 0.966 0.933 0.871 0.760 10% 12% 14% 15% 18% 20% 22% 24% 25% 30% 35% 40% 0.909 0.893 0.877 0.870 0.862 0.847 0.833 0.820 0.806 0.800 0.769 0.741 0.714 0.826 0.797 0.769 0.756 0.743 0.718 0.694 0.672 0.650 0.640 0.592 0.549 0.510 0.751 0.712 0.675 0.658 0.641 0.609 0.579 0.551 0.524 0.512 0.455 0.406 0.364 0.855 0.823 0.792 0.735 0.683 0.636 0.592 0.572 0.552 0.516 0.482 0.451 0.423 0.410 0.350 0.301 0.260 0.822 0.784 0.747 0.681 0.621 0.567 0.519 0.497 0.476 0.437 0.402 0.370 0.341 0.328 0.269 0.223 0.186 0.790 0.746 0.705 0.630 0.564 0.507 0.456 0.432 0.410 0.370 0.335 0.303 0.275 0.262 0.207 0.165 0.133 0.711 0.665 0.583 0.513 0.452 0.400 0.376 0.354 0.314 0.279 0.249 0.222 0.210 0.159 0.122 0.095 0.923 0.853 0.731 0.677 0.627 0.540 0.467 0.404 0.351 0.327 0.305 0.266 0.233 0.204 0.179 0.168 0.123 0.091 0.068 0.914 0.837 0.703 0.645 0.592 0.500 0.424 0.361 0.308 0.284 0.263 0.225 0.194 0.167 0.144 0.134 0.094 0.067 0.048 0.676 0.614 0.558 0.463 0.386 0.322 0.270 0.247 0.227 0.191 0.162 0.137 0.116 0.107 0.073 0.050 0.035 0.650 0.527 0.429 0.350 0.287 0.237 0.215 0.195 0.162 0.135 0.112 0.094 0.086 0.056 0.037 0.025 0.625 0.497 0.397 0.319 0.257 0.208 0.187 0.168 0.137 0.112 0.092 0.076 0.069 0.043 0.027 0.018 0.773 0.601 0.530 0.469 0.368 0.290 0.229 0.182 0.163 0.145 0.116 0.093 0.075 0.061 0.055 0.033 0.020 0.013 0.758 0.577 0.505 0.442 0.340 0.263 0.205 0.160 0.141 0.125 0.099 0.078 0.062 0.049 0.044 0.025 0.015 0.009 0.743 0.555 0.481 0.417 0.315 0.239 0.183 0.140 0.123 0.108 0.084 0.065 0.051 0.040 0.035 0.020 0.011 0.006 0.961 0.956 0.951 0.905 0.820 0.947 0.896 0.804 0.585 0.557 0.942 0.887 0.788 0.937 0.879 0.933 0.870 0.928 0.861 Year 1/2% 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15
Green & Company is considering investing in a robotics manufacturing line. Installation of the line will cost an estimated $15.9 million.
This amount must be paid immediately even though construction will take three years to complete (years 0, 1, and 2). Year 3 will be
spent testing the production line and, hence, it will not yield any positive cash flows. If the operation is very successful, the company
can expect after-tax cash savings of $10.9 million per year in each of years 4 through 7. After reviewing the use of these systems with
the management of other companies, Green's controller has concluded that the operation will most probably result in annual savings
of $8.1 million per year for each of years 4 through 7. However, it is entirely possible that the savings could be as low as $3.9 million
per year for each of years 4 through 7. The company uses a 12 percent discount rate. Use Exhibit A.8.
Required:
Compute the NPV under the three scenarios.
Note: Round PV factor to 3 decimal places. Enter your answers in thousands of dollars, rounded to the nearest whole number.
Negative amounts should be indicated by a minus sign.
Net present value
Best Case
Expected
Worst Case
Transcribed Image Text:Green & Company is considering investing in a robotics manufacturing line. Installation of the line will cost an estimated $15.9 million. This amount must be paid immediately even though construction will take three years to complete (years 0, 1, and 2). Year 3 will be spent testing the production line and, hence, it will not yield any positive cash flows. If the operation is very successful, the company can expect after-tax cash savings of $10.9 million per year in each of years 4 through 7. After reviewing the use of these systems with the management of other companies, Green's controller has concluded that the operation will most probably result in annual savings of $8.1 million per year for each of years 4 through 7. However, it is entirely possible that the savings could be as low as $3.9 million per year for each of years 4 through 7. The company uses a 12 percent discount rate. Use Exhibit A.8. Required: Compute the NPV under the three scenarios. Note: Round PV factor to 3 decimal places. Enter your answers in thousands of dollars, rounded to the nearest whole number. Negative amounts should be indicated by a minus sign. Net present value Best Case Expected Worst Case
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