Market Top Investors, Inc., is considering the purchase of a $345,000 computer with aneconomic life of five years. The computer will be fully depreciated over five years using thestraight-line method, at which time it will be worth $60,000. The computer will replace twooffice employees whose combined annual salaries are $86,000. The machine will alsoimmediately lower the firm's required net working capital by $75,000. This amount of networking capital will need to be replaced once the machine is sold. The corporate tax rate is 25percent. The appropriate discount rate is 8 percent. Calculate the NPV of this project. showwork step by step

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

Answered: Market Top Investors, Inc., is…

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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The management of Ballard MicroBrew is considering the purchase of an automated bottling machine for $55,000. The machine would replace an old piece of equipment that costs $14,000 per year to operate. The new machine would cost $6,000 per year to operate. The old machine currently in use could be sold now for a salvage value of $20,000. The new machine would have a useful life of 10 years with no salvage value. Required: 1. What is the annual depreciation expense associated with the new bottling machine? 2. What is the annual incremental net operating income provided by the new bottling machine? 3. What is the amount of the initial investment associated with this project that should be used for calculating the simple rate of return? 4. What is the simple rate of return on the new bottling machine? (Round your answer to 1 decimal place i.e. 0.123 should be considered as 12.3%.)
ACE Ltd is evaluating whether it should invest in a machine that costs $100,000. The machine would be fully depreciated over ten years to zero value using the straight-line depreciation method. With the new machine, the firm projects that it will be able to generate an additional $20,000 annually in sales revenue and additional $10,000 cost annually. The firm would also need an additional net working capital of $40,000. Given the firm’s cost of capital is 10% and tax rate of 20%, calculate annual operating cash flow (OCF) of the investment.
Riverview Company is evaluating the proposed acquisition of a new production machine. The machine's base price is $200,000, and installation costs would amount to $28,000. Also, $10,000 in net working capital would be required at installation. The machine will be depreciated for 3 years using simplified straight line depreciation. The machine would save the firm $110,000 per year in operating costs. The firm is planning to keep the machine in place for 5 years. At the end of the fifth year, the machine will be sold for $20,000. Riverview has a cost of capital of 12% and a marginal tax rate of 34%.What is the NPV of the project?
Talmage Inc. has just completed development of a new printer. The new product is expected to produce annual revenues of $2,700,000. Producing the printer requires an investmentin new equipment costing $2,880,000. The printer has a projected life cycle of 5 years.After 5 years, the equipment can be sold for $360,000. Working capital is also expected toincrease by $360,000, which Talmage will recover by the end of the new product’s life cycle.Annual cash operating expenses are estimated at $1,620,000. The required rate of returnis 8%.Required:1. Prepare a schedule of the projected annual cash flows.2. Calculate the NPV using only discount factors from Exhibit 12B.1 (p. 670).3. Calculate the NPV using discount factors from both Exhibits 12B.1 and 12B.2 (p. 671).
Macoupin Mining Inc. must purchase a new coring machine that costs $60,000 and will last 15 years with a salvage value of $12,000. The annual operating expenses will be $9000 the first year, increasing by $200 each year thereafter. The annual income is $15,000 per year. If Macoupin’s MARR is 8%, determine the net future worth of the machine purchase.
Your organization is planning to purchase a new office building four years from now. The building will cost $8,000,000, have a useful life of 30 years, and have no salvage value. If your organization currently has put aside $1,500,000 in an investment account with an annual interest rate of 4.8%, how much additional money must your organization deposit into the account each month in order to be able to purchase the building in four years? (select one)
As a financial analyst, you must evaluate a proposed project to produce printer cartridges. The purchase price of the equipment, including installation, is $65,000, and the equipment will be fully depreciated at t = 0. Annual sales would be 4,000 units at a price of $50 per cartridge, and the project’s life would be 3 years. Current assets would increase by $5,000 and payables by $3,000. At the end of 3 years, the equipment could be sold for $10,000. Variable costs would be 70% of sales revenues, fixed costs would be $30,000 per year, the marginal tax rate is 25%, and the corporate WACC is 11%. What is the required investment after bonus depreciation is considered, that is, the Year 0 project cash flow? What are the project’s annual cash flows? a) Project cash flow year 1 = $ b) Project cash flow year 2 = $ c) Project cash flow year 3 = $
Riverview Company is evaluating the proposed acquisition of a new production machine. The machine's base price is $200,000, and installation costs would amount to $28,000. Also, $10,000 in net working capital would be required at installation. The machine will be depreciated for 3 years using simplified straight line depreciation. The machine would save the firm $110,000 per year in operating costs. The firm is planning to keep the machine in place for 2 years. At the end of the second year, the machine will be sold for $100,000. Riverview has a cost of capital of 12% and a marginal tax rate of 34%. What is the NPV of the project? -$9.783 $3,875 O$9,555 $12,155 $19,016
Fox Hollow Franks is looking at a new system with an installed cost of$540,000. This equipment is depreciated at a rate of 20% per year (Class8) over the project’s five-year life, at the end of which the sausage systemcan be sold for $80,000. The sausage system will save the firm $170,000per year in pre-tax operating costs, and the system requires an initialinvestment in net working capital of $29,000. If the tax rate is 34% and thediscount rate is 10%, what is the NPV of this project? (Do not round yourintermediate calculations. Round the final answer to 2 decimal places.Omit $ sign in your respons
Galvanized Products is considering the purchase of a new computer system for its enterprise data management system. The vendor has quoted a purchase price of $100,000. Galvanized Products is planning to borrow one-fourth of the purchase price from a bank at 15% compounded annually. The loan is to be repaid using equal annual payments over a 3-year period. The computer system is expected to last 5 years and have a salvage value of $5,000 at that time. Over the 5-year period, Galvanized Products expects to pay a technician $25,000 per year to maintain the system but will save $55,000 per year through increased efficiencies. Galvanized Products uses a MARR of 18%/year to evaluate investments. a. What is the future worth of this investment? b. What is the decision rule for judging the attractiveness of investments based on future worth? c. Should the new computer system be purchased?
Cameron Industries is purchasing a new chemical vapor depositor in order to make silicon chips. It will cost $6,000,000 to buy the machine and $20,000 to have it delivered and installed Building a clean room in the plant for the machine will cost an additional $3 million. The machine is expected to raise gross profits by $3,000,000 per year, starting at the end of the first year, with associated costs of $1 million for each of those years. The machine is expected to have a working life of six years and will be depreciated over those six years. The marginal tax rate is 20%. What are the incremental free cash flows associated with the new machine in year 0? OA-$6,000,000 OB. -$8,118,000 C. $1,003,333 OD. -$9.020,000
Electronic Measurement and Control Company (EMCC) has developed a laser speed detector that emits infrared light invisible to humans and radar detectors alike. For full-scale commercial marketing, EMCC needs to invest $5 million in new manufacturing facilities. The system is priced at $3,000 per unit. The company expects to sell 5,000 units annually over the next five years. The new manufacturing facilities will be depreciated according to a seven-year MACRS property class. The expected salvage value of the manufacturing facilities at the end of five years is $1.6 million. The manufacturing cost for the detector is $1,200 per unit excluding depreciation expenses. The operating and maintenance costs are expected to run to $1.2 million per year. EMCC has a combined federal and state income-tax rate of 35%, and undertaking this project will not change this current marginal tax rate.(a) Determine the incremental taxable income, income taxes, and net income that would result from…

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