Problem 10-33 Calculating a Bid Price (L08)Komoka Enterprises needs someone to supply it with 151,000 cartons of machine screws per year to support its manufacturing needsover the next five years, and you've decided to bid on the contract. It will cost you $951,000 to install the equipment necessary to startproduction. The equipment will be depreciated at 30% (Class 10), and you estimate that it can be salvaged for $96.000 at the end ofthe five-year contract. Your fixed production costs will be $446,000 per year, and your variable production costs should be $16.20 percarton. You also need an initial net working capital of $101.000 If your tax rate is 35% and you require o 12% return on your investmentwhat bid price should you submit? (Do not round your intermediate calculations. Round the final answer to 2 decimal places. OmitS sign in your response.)Bid priceper carton

The various types of assets are classified under various asset classes for capital consumption…

Answered: Komoka Enterprises needs someone to…

EBK CFIN

6th Edition

ISBN:9781337671743

Author:BESLEY

Publisher:BESLEY

Chapter10: Project Cash Flows And Risk

Section: Chapter Questions

Problem 8PROB

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New-Project Analysis The Campbell Company is considering adding a robotic paint sprayer to its production line. The sprayer’s base price is $1,080,000, and it would cost another $22,500 to install it. The machine falls into the MACRS 3-year class, and it would be sold after 3 years for $605,000. The MACRS rates for the first 3 years are 0.3333, 0.4445, and 0.1481. The machine would require an increase in net working capital (inventory) of $15,500. The sprayer would not change revenues, but it is expected to save the firm $380,000 per year in before-tax operating costs, mainly labor. Campbell’s marginal tax rate is 35%. What is the Year-0 cash flow? What are the net operating cash flows in Years 1, 2, and 3? What is the additional Year-3 cash flow (i.e., the after-tax salvage and the return of working capital)? If the project’s cost of capital is 12%, should the machine be purchased?
Problem 10-33 Calculating a Bid Price (L08) Komoka Enterprises needs someone to supply it with 155,000 cartons of machine screws per year to support its manufacturing needs over the next five years, and you've decided to bid on the contract. It will cost you $955,000 to install the equipment necessary to start production. The equipment will be depreciated at 30% ( Class 10), and you estimate that it can be salvaged for $100,000 at the end of the five-year contract. Your fixed production costs will be $450,000 per year, and your variable production costs should be $16.60 per carton. You also need an initial net working capital of $105.000. If your tax rate is 35% and you require a 12 % return on your Investment, what bid price should you submit? (Do not round your intermediate calculations. Round the final answer to 2 decimal places. Omit $ sign in your response.) Bid price $ per carton D
Question 19 After spending $10,200 on client-development, you have just been offered a big production contract by a new client. The contract will add $204,000 to your revenues for each of the next five years and it will cost you $99,000 per year to make the additional product. You will have to use some existing equipment and buy new equipment as well. The existing equipment is fully depreciated, but could be sold for $54,000 now. If you use it in the project, it will be worthless at the end of the project. You will buy new equipment valued at $25,000 and use the 5-year MACRS schedule to depreciate it. It will be worthless at the end of the project. Your current production manager earns $80,000 per year. Since she is busy with ongoing projects, you are planning to hire an assistant at $45,000 per year to help with the expansion. You will have to immediately increase your inventory from $20,000 to $30,000. It will return to $20,000 at the end of the project. Your company's tax…
H3. ABC Enterprises needs someone to supply it with 170,000 cartons of machine screws per year to support its manufacturing needs over the next five years, and you’ve decided to bid on the contract. It will cost you $510,000 to install the equipment necessary to start production; you’ll depreciate this cost straight-line to zero over the project’s life. You estimate that in five years, this equipment can be salvaged for $40,000. Your fixed production costs will be $160,000 per year, and your variable production costs should be $8 per carton. You also need an initial investment in net working capital of $60,000. If your tax rate is 35 percent and you require a 16 percent return on your investment, what bid price should you submit? Show proper step by step calculation
QUESTION 2 You are considering starting new factory producing small electric heaters. Each unit will sell at a price of $55. The production cost of each heater is $35. You are expecting to sell 9000 units per year. This project has an economic life of 6 years. The project requires an investment of $700000 in plants and equipment. This equipment will be depreciated to zero salvage value based on 5-year MACRS schedule. The depreciation rates from year 1 to 6 are 20 % ,32 %, 19.2 %, 11.52 %, 11.52 %, and 5.76 percent, respectively. The required rate of return for the project is 12 percent, the working capital requirement is 10 percent of the next year's sales revenue. The company will sell its old equipment for $100,000. The old machine is fully depreciated. The marginal corporate tax rate is 20 percent. At the termination of the project, the plant and equipment will be sold for an estimated value of $50000. Based on these assumptions, estimate the working capital requirements for the…
QUESTION 3 You are considering starting a new factory producing small electric heaters. Each unit will sell at a price of $55. The production cost of each heater is $35. You are expecting to sell 9000 units per year. This project has an economic life of 6 years. The project requires an investment of $700000 in plants and equipment. This equipment will be depreciated to zero salvage value based on 5-year MACRS schedule. The depreciation rates from year 1 to 6 are 20 % ,32 %, 19.2 %, 11.52 %, 11.52 %, and 5.76 percent, respectively. The company will sell its old equipment for $100,000. The old machine is fully depreciated. The required rate of return for the project is 12 percent, the working capital requirement is 10 percent of the next year's sales revenue. The marginal corporate tax rate is 20 percent. At the termination of the project, the plant and equipment will be sold for an estimated value of $50000. Based on these assumptions, estimate the cash flow for capital expenditures.…
QUESTION 4 You are considering starting a new factory producing small electric heaters. Each unit will sell at a price of $125. The production cost of each heater is $110. The fixed cost of production is $45000. You are expecting to sell 10500 units per year. This project has an economic life of 9 years. The project requires an investment of $555000 in plants and equipment. This equipment will be depreciated using a straight line depreciation method to a salvage value of zero. The required rate of return for the project is 8 percent. The marginal corporate tax rate is 21 percent. Based on these assumptions, calculate the degree of operating leverage (DOL)? 3.4 O 3.1 O 3.2 3.3
QUESTION 4 You are considering starting a new factory producing small electric heaters. Each unit will sell at a price of $55. The production cost of each heater is $35. You are expecting to sell 9000 units per year. This project has an economic life of 6 years. The project requires an investment of $700000 in plants and equipment. This equipment will be depreciated to zero salvage value based on 5-year MACRS schedule. The depreciation rates from year 1 to 6 are 20 % , 32 %, 19.2 %, 11.52 %, 11.52 %, and 5.76 percent, respectively. The required rate of return for the project is 12 percent, the working capital requirement is 10 percent of the next year's sales revenue. The company will sell its old equipment for $100,000. The old machine is fully depreciated. The marginal corporate tax rate is 20 percent. At the termination of the project, the plant and equipment will be sold for an estimated value of $50000. Based on these assumptions, estimate the total cash flows for the project.…
QUESTION 3 You are considering starting a new factory producing small electric heaters. Each unit will sell at a price of $65. The production cost of each heater is $50. The fixed cost of production is $40000. You are expecting to sell 8200 units per year. This project has an economic life of 7 years. The project requires an investment of $285000 in plants and equipment. This equipment will be depreciated using a straight line depreciation method to a salvage value of zero. The required rate of return for the project is 14 percent. The marginal corporate tax rate is 22 percent. Do a sensitivity analysis using different sales prices per unit. Assume that the sales price can be between $81.25 and $58.5. What is the maximum net present value based on the range of the sales price per unit? O 31036 O 476741 O 691022 O 305316
QUESTION 5 You are considering starting a new factory producing small electric heaters. Each unit will sell at a price of $55. The production cost of each heater is $35. You are expecting to sell 9000 units per year. This project has an economic life of 6 years. The project requires an investment of $700000 in plants and equipment. This equipment will be depreciated to zero salvage value based on 5-year MACRS schedule. The depreciation rates from year 1 to 6 are 20 % ,32 %, 19.2 %, 11.52 %, 11.52 %, and 5.76 percent, respectively. The required rate of return for the project is 12 percent, the working capital requirement is 10 percent of the next year's sales revenue. The company will sell its old equipment for $100,000. The old machine is fully depreciated. The marginal corporate tax rate is 20 percent. At the termination of the project, the plant and equipment will be sold for an estimated value of $50000. Based on these assumptions, estimate the net present value of the project.
PART 2 (RATE OF RETURN) ABC Company is trying to decide whether or not to automate their product packing process. The machine costs $200,000, has a useful life of 10 years and a salvage value $10,000. The machine costs $9000 per year to operate and maintain but will save the company $50,000 per year in labor costs. ABC Company has asked you to evaluate the economics of this purchase. (Assume their MARR is 14% per year).
QUESTION 6 You are considering starting a new factory producing small electric heaters. Each unit will sell at a price of $55. The production cost of each heater is $35. You are expecting to sell 9000 units per year. This project has an economic life of 6 years. The project requires an investment of $700000 in plants and equipment. This equipment will be depreciated to zero salvage value based on 5-year MACRS schedule. The depreciation rates from year 1 to 6 are 20 %,32 %, 19.2 %, 11.52 %, 11.52 %, and 5.76 percent, respectively. The required rate of return for the project is 12 percent, the working capital requirement is 10 percent of the next year's sales revenue. The company will sell its old equipment for $100,000. The old machine is fully depreciated. The marginal corporate tax rate is 20 percent. At the termination of the project, the plant and equipment will be sold for an estimated value of $50000. Based on these assumptions, estimate the internal rate of return for this…

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