Novak Company would like to start a new venture. The company is currently in the 24%marginal tax bracket and uses a 4% discount factor. The company projects that the venturewill produce before-tax cash flows of $9,000 in Year 0, $20,000 in Year 1, and $33,000 in Year2.(a)If taxable income and the before-tax cash flows are equal in the year received, computethe present value of the cash flows. (Round present value factor calculations to 3 decimalplaces, e.g. 1.251 and final answer to O decimal places, e.g. 58,971.)Present value

Present Value of Cash flow = Future Cash flow x wherei = discount factorn= Time periodPost Tax Cash…

Answered: Novak Company would like to start a new…

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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ARCABE Enterprises is trying to select the best investment from among four alternatives. Each alternative involves an initial outlay of P100,000. Their cash flows follow(see image) Evaluate and rank each alternative based on: a) discounted payback period (use a 10% for cost of capital) b) net present value (use a 10% discount rate) c) internal rate of return.
From Part A above, assume that the bank decided to give a loan of $ 59 million to Nivea Corporation (recorded for the initial year). Nivea-Corporation invested the amount in a project and generated the following sequence of cash flows over six years: Year Cash Flow ($ million) 0 -59 1 4 2 5 3 6 4 7.33 5 8 6 8.25 Calculate the Net Present Value (NPV) and the Profitability Index (PI) over the six years. Assume discount rate 17% This project does not end after the sixth year but instead will generate cash flows far into the future. Estimate the project’s terminal value, assuming that cash flows after year 6 continue at $8.25 per year perpetuity and then recalculate the investment’s NPV. Calculate the terminal value assuming that cash flows after the sixth year grow at 2% annually in perpetuity, and then recalculate the NPV.
Baghiben
Vinubhai
Shelton Tax Services is considering investing in new software for their corporate tax business. The investment will require an outlay of $350,000 initially, and is expected to generate the following after-tax cash flows: Year 1, $60,000; Year 2, $80,000; Year 3, $105,000; Year 4, $120,000; Year 5, $145,000. Shelton uses a discount rate of 10%. What is the net present value of the proposed investment? Should this investment be accepted or rejected? Must show your computation steps. Use the appropriate tables in Appendix A to obtain the relevant present value factor and round up your final answer to the nearest dollar.
You are considering an investment in Fields and Struthers, Inc., and want to evaluate the firm's free cash flow. From the income statement, you see that Fields and Struthers earned an EBIT of $70 million, had a tax rate of 21 percent, and its depreciation expense was $7 million. Fields and Struthers's NOPAT gross fixed assets increased by $36 million from 2020 and 2021. The firm's current assets increased by $32 million and spontaneous current liabilities increased by $18 million. Calculate Fields and Struthers's NOPAT operating cash flow for 2021. Calculate Fields and Struthers's NOPAT investment in operating capital for 2021. Calculate Fields and Struthers's NOPAT free cash flow for 2021.
As a financial analyst, you have been tasked with evaluating Randy Watson Music's free cash flow. Based on the 2022 income statement, BIT was $41 million, the tax rate was 21 percent, and its depreciation expense was $6 million. NOPAT gross fixed assets increased by $28 million from 2021 and 2022. The company's current assets increased by $18 million and current liabilities increased by $14 million. Calculate the Investment in operating capital (IOC) for 2022.
Please
Ruby's Corporation is considering two mutually exclusive projects with useful life of 4 years. The after-tax cash flows for projects Q and P are listed below. Table 2 Year Cash Flow Q (RM) (60,000) 30,000 20,000 20,000 10,000 Cash Flow P (RM) (70,000) 10,000 20,000 30,000 40,000 1 2 4 Assuming the expected rate of return on the investment is estimated at 10%. Required to: a. calculate the payback period for each project. b. calculate the net present value for each project. С. based on the two investment techniques, which project should be accepted?
Chase Brew Inc is considering an investment with the following information: initial investment in assets = $1,600,000 to be depreciated to $0 via straight-line method over 8-year project life sales will increase by $1,750,000/year expenses will increase by $1,240,000/year firm's marginal tax rate is 28% What is the incremental after-tax cash flow (OCF) per year associated with the following project? Enter answer in dollars, rounded to the nearest dollar.
Blossom Company accumulates the following data concerning a proposed capital investment: cash cost $217,280, net annual cash flows $44,000, and present value factor of cash inflows for 10 years is 5.22 (rounded). (If the net present value is negative, use either a negative sign preceding the number eg -45 or parentheses eg (45).) Determine the net present value, and indicate whether the investment should be made. Net present value 24 The investment be made.
THX Ltd is a private equity firm that is considering investing in an investment project with a cost of R300m which will result in after-tax operating cash flows of R100m per year for 5 years. The company is considering borrowing R150m at an interest rate of 10% per year to partly finance the project. The loan is repayable at the end of year 5. The tax rate is 2896. Determine the IRR of the investment without any borrowing and the IRR if the company undertakes the borrowing.

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