Essentials Of Investments
11th Edition
ISBN: 9781260013924
Author: Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher: Mcgraw-hill Education,
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- Calculating initial cash flow DuPree Coffee Roasters, Inc., wishes to expand and modernize its facilities. The installed cost of a proposed computer-controlled automatic-feed roaster will be $139,000. The firm has a chance to sell its 4-year-old roaster for $35,200. The existing roaster originally cost $59,400 and was being depreciated using MACRS and a 7-year recovery period (see the table). DuPree is subject to a 21% tax rate. a. What is the book value of the existing roaster? b. Calculate the after-tax proceeds of the sale of the existing roaster. c. Calculate the change in net working capital using the following figures: Anticipated Changes in Current Assets and Current Liabilities Accruals Inventory Accounts payable Accounts receivable Cash - $19,300 +49,300 +40,900 + 69,400 0 a. The remaining book value of the existing roaster is $. (Round to the nearest dollar.) b. The after-tax proceeds of the sale of the existing roaster will be $. (Round to the nearest dollar.) c. The change…arrow_forward(Net present value calculation) Carson Trucking is considering whether to expand its regional service center in Mohab, UT. The expansion requires the expenditure of $10,000,000 on new service equipment and would generate annual net cash inflows from reduced costs of operations equal to $2,500,000 per year for each of the next 8 years. In year 8 the firm will also get back a cash flow equal to the salvage value of the equipment, which is valued at $1 million. Thus, in year 8 the investment cash inflow totals $3,500,000. Calculate the project's NPV using a discount rate of 9 percent. If the discount rate is 9 percent, then the project's NPV is $ (Round to the nearest dollar.)arrow_forward(Net present value calculation) Carson Trucking is considering whether to expand its regional service center in Mohab, UT. The expansion requires the expenditure of $10,500,000 on new service equipment and would generate annual net cash inflows from reduced costs of operations equal to $3,500,000 per year for each of the next 9 years. In year 9 the firm will also get back a cash flow equal to the salvage value of the equipment, which is valued at $1 million. Thus, in year 9 the investment cash inflow totals $4,500,000. Calculate the project's NPV using a discount rate of 8 percent. If the discount rate is 8 percent, then the project's NPV is $. (Round to the nearest dollar.) Carrow_forward
- Determine cash flows Kauai Tools Inc. is planning to invest in new manufacturing equipment to make a new garden tool. The new garden tool is expected to generate additional annual sales of 9,300 units at $30 each. The new manufacturing equipment will cost $110,800 and is expected to have a 10-year life and a $8,500 residual value. Selling expenses related to the new product are expected to be 4% of sales revenue. The cost to manufacture the product includes the following on a per-unit basis: Direct labor Direct materials Fixed factory overhead-depreciation Variable factory overhead Total Determine the net cash flows for the first year of the project, Years 2-9, and for the last year of the project. Use the minus sign to indicate cash outflows. Do not round your intermediate calculations but, if required, round your final answers to the nearest dollar. Kauai Tools Inc. Net Cash Flows Line Item Description Initial investment Operating cash flows: $5.10 16.70 1.10 2.60 $25.50 Year 1 Years…arrow_forwardOperating cash inflows Strong Tool Company has been considering purchasing a new lathe to replace a fully depreciated lathe that would otherwise last 5 more years. The new lathe is expected to have a 5-year life and depreciation charges of $2,220 in Year 1; $3,552 in Year 2; $2,109 in Year 3; $1,332 in both Year 4 and Year 5; and $555 in Year 6. The firm estimates the revenues and expenses (excluding depreciation and interest) for the new and the old lathes to be as shown in the following table. The firm is subject to a 40% tax rate on ordinary income. a. Calculate the operating cash inflows associated with each lathe. (Note: Be sure to consider the depreciation in year 6.) b. Calculate the operating cash inflows resulting from the proposed lathe replacement. c. Depict on a time line the incremental operating cash inflows calculated in part b. a. Calculate the operating cash inflows associated with the new lathe below: (Round to the nearest dollar.) Year Revenue Expenses (excluding…arrow_forward2. Incremental costs - Initial and terminal cash flow Consider the case of Marston Manufacturing Company: Marston Manufacturing Company is considering a project that requires an investment in new equipment of $3,780,000. Under the new tax law, the equipment is eligible for 100% bonus depreciation at t = 0 so the equipment will be fully depreciated at the time of purchase. Marston estimates that its accounts receivable and inventories need to increase by $720,000 to support the new project, some of which is financed by a $288,000 increase in spontaneous liabilities (accounts payable and accruals). The company's tax rate is 25%. The after-tax cost of Marston’s new equipment is . Marston’s initial net investment outlay is . Suppose Marston’s new equipment is expected to sell for $600,000 at the end of its four-year useful life, and at the same time, the firm expects to recover all of its net operating working capital (NOWC) investment. Remember, that under the…arrow_forward
- Cash Payback Period, Net Present Value Analysis, and Qualitative Considerations The plant manager of Shenzhen Electronics Company is considering the purchase of new automated assembly equipment. The new equipment will cost $72,000. The manager believes that the new investment will result in direct labor savings of $18,000 per year for 10 years. Present Value of an Annuity of $1 at Compound Interest Year 6% 10% 12% 15% 20% 1 0.943 0.909 0.893 0.870 0.833 2 1.833 1.736 1.690 1.626 1.528 3 2.673 2.487 2.402 2.283 2.106 4 3.465 3.170 3.037 2.855 2.589 5 4.212 3.791 3.605 3.353 2.991 6 4.917 4.355 4.111 3.785 3.326 7 5.582 4.868 4.564 4.160 3.605 8 6.210 5.335 4.968 4.487 3.837 9 6.802 5.759 5.328 4.772 4.031 10 7.360 6.145 5.650 5.019 4.192 a. What is the payback period on this project?fill in the blank 1 years b. What is the net present value, assuming a 12% rate of return? Use the table provided above. Round to the nearest whole dollar. Net present value…arrow_forward(Net present value calculation) Carson Trucking is considering whether to expand its regional service center in Mohab, UT. The expansion requires the expenditure of $9,500,000 on new service equipment and would generate annual net cash inflows from reduced costs of operations equal to $3.500.000 per year for each of the next 7 years. In year 7 the firm will also get back a cash flow equal to the salvage value of the equipment, which is valued at $0.9 million. Thus, in year 7 the investment cash inflow totals $4,400,000 Calculate the project's NPV using a discount rate of percent If the discount rate is 8 percent, then the projects NPV is 3 (Round to the nearest dollar)arrow_forward
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