Kinky Copies may buy a high-volume copier. The machine costs $130,000 and this cost can be fully depreciated immediately. Kinkyanticipates that the machine actually can be sold in 5 years for $30,000. The machine will save $22,000 a year in (after-tax) labor costsbut will require an increase in working capital, mainly paper supplies, of $11,000. The firm's tax rate is 21%, and the discount rate is 6%.(Assume the net working capital will be recovered at the end of Year 5.)What is the NPV of this project?Note: Negative amount should be indicated by a minus sign. Do not round intermediate calculations. Round your answer to 2decimal places.NPV

NPV is also known as Net Present Value.. It is a capital budgeting technique which helps in decision…

Answered: Kinky Copies may buy a high-volume…

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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Webmasters.com has developed a powerful new server that would be used for corporations’ Internet activities. It would cost $10 million at Year 0 to buy the equipment necessary to manufacture the server. The project would require net working capital at the beginning of each year in an amount equal to 10% of the year’s projected sales; for example, NWC0 10% Sales1. The servers would sell for $24,000 per unit, and Webmasters believes that variable costs would amount to $17,500 per unit. After Year 1, the sales price and variable costs will increase at the inflation rate of 3%. The company’s non-variable costs would be $1 million in Year 1 and would increase with inflation. The server project would have a life of 4 years. If the project is undertaken, it must be continued for the entire 4 years. Also, the project’s returns are expected to be highly correlated with returns on the firm’s other assets. The firm believes it could sell 1,000 units per year. The equipment would be depreciated…
Ben is looking at a new computer system with an installed cost of $560000. This cost will be depreciated straight - line to zero over the project's five year life, at the end of which the computer system can be scrapped for $85000. The computer system will save the company $165000 per year in pretax operatiing costs, and the system requires an initial investment in net working capital of $ 29000. If the tax rate is 34 percent and the discount rate is 10 percent, what is the NPV of this project?
Genesis Corporation want to purchase a piece of machinery for $150,000 that will cost $20,000 to have it delivered and installed. Based on past information, they believe they can sell the machinery for $25,000 in 5 years. The company’s marginal tax rate is 34%. If the applicable CCA rate is 20% and the required return on this project is 15%, what is the present value of the CCA tax shield?
A new electronic process monitor costs $990,000. This cost could be depreciated at 30% per year (Class 10). The monitor would actually be worth $100,000 in five years. The new monitor would save $460,000 per year before taxes and operating costs. The new monitor requires us to increase net working capital by $47,200 when we buy it. Assume a tax rate of 40% and a 15% return. a. Suppose the monitor was assigned a 25% CCA rate. Calculate the new NPV. (Do not round intermediate calculations. Round the final answer to 2 decimal places. Omit $ sign in your response.) ***NOTE*** Hello, I found an answer key saying the answer is $180,108.50. Hopefully this helps for reference when solving for it. Thanks:)
Modern Artifacts can produce keepsakes that will be sold for $280 each. Nondepreciation fixed costs are $5, 000 per year, and variable costs are $260 per unit. The initial investment of $13,000 will be depreciated straight-line over its useful life of five years to a final value of zero, and the discount rate is 10%. What is the accounting break-even level of sales if the firm pays no taxes? What is the NPV break-even level of sales if the firm pays no taxes? Note: Do not round intermediate calculations. Round your final answer to the nearest whole number. What is the accounting break-even level of sales if the firm's tax rate is 20%? What is the NPV break-even level of sales if the firm's tax rate is 20%? Note: Do not round intermediate calculations. Round your final answer to the nearest whole number. What is the degree of operating leverage for the firm for the NPV break-even points when the tax rate is 0% and when the tax rate is 20%? Note: Round intermediate calculation to the…
Raghubhai
llana Industries, Inc., needs a new lathe. It can buy a new high-speed lathe for $0.97 million. The lathe will cost $31,300 to run, will save the firm $127,700 in labour costs, and will be useful for 10 years. Suppose that for tax purposes, the lathe will be in an asset class with a CCA rate of 25%. llana has many other assets in this asset class. The lathe is expected to have a 10-year life with a salvage value of $91,000. The actual market value of the lathe at that time will also be $91,000. The discount rate is 15% and the corporate tax rate is 35%. What is the NPV of buying the new lathe? (Round your answer to the nearest cent.) NPV $
Daily Enterprises is purchasing a $10.3 million machine. It will cost $46,000 to transport and install the machine. The machine has a depreciable life of five years using straight-line depreciation and will have no salvage value. The machine will generate incremental revenues of $4.2 million per year along with incremental costs of $1.1 million per year. Daily’s marginal tax rate is 35%. You are forecasting incremental free cash flows for Daily Enterprises. What are the incremental free cash flows associated with the new machine? A. The free cash flow for year 0 will be? (Round to nearest dollar.) B. The free cash flow for years 1-5 will be? (Round to the nearest dollar.)
The Lesseis Company has an opportunity to invest in one of two mutally exclusive machines that will produce a product the company will need for the next 8 years Machine A has an after-tax cost of $8 million but will provide after-tux inflows of $4.9 million per year for 4 years. If Machine A were replaced, its after-tax cost would be million $8.7 million due to inflation and its after-tax rash inflows would increase to $5,1 million due to production efficiencies. Machine B has an after-tax cost of $13.2 million and will provide after- tax inflows of $4,5 million for 8 years. per year If the WACC is 8%, which machine should be acquired? Enter your answers in millions, For example, on answer of $10, 550, 000 should be entered as 10.55. Do not rand intermediate calculations. Round your answers to two decimal places. millines millians, rather millions created by Machine Machine A is the better project and will increase the company's value by $ then the $ B.
into.com has developed a powerful new server that would be used for corporations’ Internet activities. It would cost $25 million at Year 0 to buy the equipment necessary to manufacture the server. The project would require net working capital at the beginning of each year in an amount equal to 12% of the year’s projected sales; for example, NWC0 = 12%(Sales1 ). The servers would sell for $21,000 per unit, and Pinto believes that variable costs would amount to $15,000 per unit. After Year 1, the sales price and variable costs will increase at the inflation rate of 2.5%. The company’s nonvariable costs would be $1.5 million at Year 1 and would increase with inflation. The server project would have a life of 4 years. If the project is undertaken, it must be continued for the entire 4 years. Also, the project’s returns are expected to be highly correlated with returns on the firm’s other assets. The firm believes it could sell 2,000 units per year. The equipment would be depreciated over a…
Nikul

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