Lander Company has an opportunity to pursue a capital budgeting project with a five-year time horizon. Lander estimated thefollowing costs and revenues for the project:Cost of equipment neededWorking capital neededRepair of the equipment in two yearsAnnual revenues and costs:Sales revenuesVariable expensesFixed out-of-pocket operating costs$ 320,000$ 69,000$ 22,500$ 440,000$ 225,000$ 98,000The piece of equipment mentioned above has a useful life of five years and zero salvage value. Lander uses straight-line depreciationfor financial reporting and tax purposes. The company's tax rate is 30% and its after-tax cost of capital is 11%. When the projectconcludes in five years, the working capital will be released for investment elsewhere within the company.Click here to view Exhibit 14B-1 and Exhibit 14B-2, to determine the appropriate discount factor(s) using tables.2. Net present valueRequired:1. Calculate the net present value of this investment opportunity.Note: Negative amounts should be indicated by a minus sign. Round your final answer to the nearest whole dollar.Answer is complete but not entirely correct.(58,170) X

NPV (Net Present Value) is a financial metric used to evaluate the profitability of an investment by…

Answered: Lander Company has an opportunity to…

EBK CONTEMPORARY FINANCIAL MANAGEMENT

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter9: Capital Budgeting And Cash Flow Analysis

Section: Chapter Questions

Problem 18P

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Consolidated Aluminum is considering the purchase of a new machine that will cost $308,000 and provide the following cash flows over the next five years: $88,000, 92,000, $91,000, $72,000, and $71,000. Calculate the IRR for this piece of equipment. For further instructions on internal rate of return in Excel, see Appendix C.
Garnette Corp is considering the purchase of a new machine that will cost $342,000 and provide the following cash flows over the next five years: $99,000, $88,000, $92,000. $87,000, and $72,000. Calculate the IRR for this piece of equipment. For further instructions on internal rate of return in Excel. see Appendix C.
Postman Company is considering two independent projects. One project involves a new product line, and the other involves the acquisition of forklifts for the Materials Handling Department. The projected annual operating revenues and expenses are as follows: Required: Compute the after-tax cash flows of each project. The tax rate is 40 percent and includes federal and state assessments.
Edelman Engineering is considering including two pieces of equipment, a truck and an overhead pulley system, in this year’s capital budget. The projects are independent. The cash outlay for the truck is $17,100, and that for the pulley system is $22,430. The firm’s cost of capital is 14%. After-tax cash flows, including depreciation, are as follows: Calculate the IRR, the NPV, and the MIRR for each project, and indicate the correct accept/reject decision for each.
Rosman Company has an opportunity to pursue a capital budgeting project with a five-year time horizon. After careful study, Rosman estimated the following costs and revenues for the project: Cost of new equipment Sale of old equipment no longer needed Annual cash inflows Working capital needed Equipment maintenance in each of Years 3 and 4 $420,000 $ 80,000 $135,000 $ 65,000 $ 20,000 The new piece of equipment mentioned above has a useful life of five years and zero salvage value. The old piece of equipment mentioned above would be sold at the beginning of the project and there would be no gain or loss realized on its sale. Rosman uses the straight-line depreciation method for financial reporting and the CCA rate for tax purposes is 20%. The company's tax rate is 30% and its after-tax cost of capital is 12%. When the project concludes in five years the working capital will be released for investment elsewhere within the company. Required: 1. Compute the net present value of this…
n the design of a chemical plant, the following expenditures and revenues are estimated after the plant has achieved its desired production rate. Total capital investment (TCI) : $10 000 000 Working capital investment (WCI) : $1 000 000 Annual sales : $8 000 000 /year Annual expenditures : $2 000 000 /year Assuming straight-line depreciation over a 10-year project analysis period, determine a) The return on the investment after taxes b) The payback period
A company is evaluating a capital investment with the following projections: Initial Investment = $75,000 Salvage value = $15,000 Project life = 10 years Capital budgeting assumptions: Old Machine is fully depreciated Old machine annual operating cost: 40,000 Old machine annual maintenance cost: 10,000 New machine annual operating cost: 20,000 New machine annual maintenance cost: 9,000 Discount rate: 10% Tax rate: 20% What is the project's internal rate of return (IRR)?Answer as a whole number. 5% would be answered as 5.
Rosman Company has an opportunity to pursue a capital budgeting project with a five-year time horizon. After careful study, Rosman estimated the following costs and revenues for the project: Cost of new equipment needed Sale of old equipment no longer needed Working capital needed Equipment maintenance in each of Years 3 and 4 Annual revenues and costs: Sales revenues Variable expenses Fixed out-of-pocket operating costs $430,000 $ 82,000 $ 67,000 $ 22,000 $430,000 $185,000 $104,000 The new piece of equipment mentioned above has a useful life of five years and zero salvage value. The old piece of equipment mentioned above would be sold at the beginning of the project and there would be no gain or loss realized on its sale. Rosman uses the straight-line depreciation method for financial reporting and tax purposes. The company's tax rate is 30% and its after-tax cost of capital is 11%. When the project concludes in five years the working capital will be released for investment elsewhere…
Marbry Corporation has provided the following information concerning a capital budgeting project: After-tax discount rate 9% Tax rate 30% Expected life of the project 4 Investment required in equipment $ 180,000 Salvage value of equipment $ 0 Annual sales $ 510,000 Annual cash operating expenses $ 370,000 One-time renovation expense in year 3 $ 70,000 The company uses straight-line depreciation on all equipment. Assume cash flows occur at the end of the year except for the initial investments. The company takes income taxes into account in its capital budgeting. The income tax expense in year 2 is:
Manama Manufacturing has $170,000 to invest in either Project A or Project B. The following data are available on these projects: Project B Project A $170,000 Cost of equipment needed now $160,000 Working capital investment needed $0 $10,000 now Annual net operating cash inflows $45,000 $55,000 Salvage value of equipment in 10 years $30,000 $0 Click here to view Exhibit 14B-1 and Exhibit 14B-2, to determine the appropriate discount factor(s) using the tables provided. Both projects have a useful life of 10 years. At the end of 10 years, the working capital investment will be released for use elsewhere. Manama's discount rate is 12%. The net present value of Project A is closest to: A. $83,550 B. $91,800 OC. $93,910 $71.215 OOOO UD OD.
The following cash flows have been estimated for a capital expenditure project:Cost of equipment (year 0) $100,000Revenues (years 1-5) $50,000 each yearRunning costs (years 1-5) $20,000 each yearProject duration 5 yearCost of capital 10%The NPV of the project is +$13,700.REQUIREDWhich of the following variables is most sensitive with regard to the overall financial risk of the project? Explain your answer and Show your calculations.1. Cost of equipment2. Revenues3. Running costs4. Duration
Assume the following information for a capital budgeting proposal with a five-year time horizon: Initial investment: Cost of equipment (zero salvage value) $ 530,000 Annual revenues and costs: Sales revenues $ 300,000 Variable expenses $ 130,000 Depreciation expense $ 50,000 Fixed out-of-pocket costs $ 40,000 Click here to view Exhibit 12B-1 and Exhibit 12B-2, to determine the appropriate discount factor(s) using the tables provided. If the company’s discount rate is 12%, then the net present value for this investment is closest to:

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