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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Question 12
Outdoor Sports is considering adding a miniature golf course to its facility. The course would require a $138,000 loan with annual interest of $6,000, and the course would be depreciated on a straight line basis over its 5-year life with a zero salvage value. The estimated income from the golfing fees would be $72,000 a year with $24,000 of that amount being variable cost. The fixed cost would be $11,600. In addition, the firm anticipates an additional $14,000 in revenue from its existing facilities if the golf course is added. However, the firm expects its driving range income will decrease by $9,000 each year since the golf course across town closed down. The project will require $3,000 of net working capital, which is recoverable at the end of the project. If Outdoor Sports has a tax rate of 34 percent and a discount rate of 12 percent, what is the net present value of this project? Hint: Get operational cash flow first.
Group of answer choices
$11,309
$14,901
$14,439
$12,737
$11,628
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