A private gym is looking at a new set of sports equipment with an installed cost of$465,000. This cost will be depreciated straight-line to zero over the project's five-yearlife, at the end of which the sports equipment can be scrapped for (TIP: "scrapped for" =sold for) $61,000. The sports equipment will save the gym $143,000 per year in pretaxoperating costs, and the equipment requires an initial investment in net working capitalof $27,000. If the tax rate is 22 percent and the discount rate is 10 percent, what is theNPV of this project? (Do not round intermediate calculations and round your answer to2 decimal places, e.g., 32.16.)NPV

Name: A private gym is looking at a new set of sports equipment with an ins
Uploaded: 2024-03-20T06:50:59.000Z
Channel: Bartleby
Description: A private gym is looking at a new set of sports equipment with an installed cost of$465,000. This cost will be depreciated straight-line to zero over the project's five-yearlife, at the end of which the sports equipment can be scrapped for (TIP: "sc

NPV is the time value based method of capital budgeting techniques and mostly used for selecting…

Business

Finance

private gym is looking at a new set of sports equipment with an installed cost $465,000. This cost will be depreciated straight-line to zero over the project's five-yea ife, at the end of which the sports equipment can be scrapped for (TIP: "scrapped for" sold for) $61,000. The sports equipment will save the gym $143,000 per year in preta operating costs, and the equipment requires an initial investment in net working capita of $27,000. If the tax rate is 22 percent and the discount rate is 10 percent, what is th NPV of this project? (Do not round intermediate calculations and round your answer t 2 decimal places, e.g., 32.16.)

private gym is looking at a new set of sports equipment with an installed cost $465,000. This cost will be depreciated straight-line to zero over the project's five-yea ife, at the end of which the sports equipment can be scrapped for (TIP: "scrapped for" sold for) $61,000. The sports equipment will save the gym $143,000 per year in preta operating costs, and the equipment requires an initial investment in net working capita of $27,000. If the tax rate is 22 percent and the discount rate is 10 percent, what is th NPV of this project? (Do not round intermediate calculations and round your answer t 2 decimal places, e.g., 32.16.)

EBK CONTEMPORARY FINANCIAL MANAGEMENT

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter9: Capital Budgeting And Cash Flow Analysis

Section: Chapter Questions

Problem 4P

See similar textbooks

Similar questions

Dauten is offered a replacement machine which has a cost of 8,000, an estimated useful life of 6 years, and an estimated salvage value of 800. The replacement machine is eligible for 100% bonus depreciation at the time of purchase- The replacement machine would permit an output expansion, so sales would rise by 1,000 per year; even so, the new machines much greater efficiency would cause operating expenses to decline by 1,500 per year The new machine would require that inventories be increased by 2,000, but accounts payable would simultaneously increase by 500. Dautens marginal federal-plus-state tax rate is 25%, and its WACC is 11%. Should it replace the old machine?
The Ham and Egg Restaurant is considering an investment in a new oven that has a cost of $60,000, with annual net cash flows of $9,950 for 8 years. The required rate of return is 6%. Compute the net present value of this investment to determine whether or not you would recommend that Ham and Egg invest in this oven.
Yoga Ltd is requesting a purchase of an upgraded class streaming system with an installed cost of $574,000. This cost will be depreciated straight-line to zero over the project's five-year life, at the end of which the system can be sold tor $20,000. The old system will be sold off for $10,000. The system will generate new tuition of $116,000 per year with negligible changes to operating costs. In year three the software license will need to be renewed at a cost of 15,000. The system requires an initial investment in net working capital of $15,000. If required rate of return is 10 percent, what is the present value of net cash flow for Year 3 (rounded to a whole number)?
Former Green Bay Packers defensive tackle, Don Davey, is considering opening a Firehouse Sub Shop in Wauwatosa, Wisconsin. The new Fireside Sub Shop will require new sandwich-grilling equipment costing $598,000 that would be depreciated on a straight-line basis to zero over the 5-year life of the project. The grilling equipment will be salvaged for $181,000 at the end of the project. The Sub Shop project requires an initial investment of $42,000 in net working capital, which will be recovered at the end of the project. The tax rate is 35%. What is the Firehouse Sub Shop project’s IRR if it is expected to generate an annual operating cash flow of $176,600? a. 13.24% b. 18.39% c. 18.48% d. 16.87% e. 15.64%
You are working on a bid to build two city parks a year for the next three years. This project requires the purchase of $185,000 of equipment that will be depreciated using straight-line depreciation to a zero book value over the 3-year project life. The equipment can be sold at the end of the project for $34,000. You will also need $20,000 in net working capital for the duration of the project. The fixed costs will be $18,000 a year and the variable costs will be $168,000 per park. Your required rate of return is 15 percent and your tax rate is 34 percent. What is the minimal amount you should bid per park? A $128,600 B $154,300 C) $72,500 E $219,900 $189,100
Aerotron Electronics is considering purchasing a water filtration system to assist in circuit board manufacturing. The system costs $40,000. It has an expected life of 7 years at which time its salvage value will be $7,500. Operating and maintenance expenses are estimated to be $2,000 per year. If the filtration system is not purchased, Aerotron Electronics will have to pay Bay City $12,000 per year for water purification. If the system is purchased, no water purification from Bay City will be needed. Aerotron Electronics must borrow half of the purchase price, but they cannot start repaying the loan for 2 years. The bank has agreed to three equal annual payments, with the first payment due at the end of year 2. The loan interest rate is 8% compounded annually. Aerotron Electronics’ MARR is 10% compounded annually. a. What is the present worth of this investment? b. What is the decision rule for judging the attractiveness of investmentsbased on present worth? c. Should Aerotron…
Aerotron Electronics is considering the purchase of a water filtration system to assist in circuit board manufacturing. The system costs $220,000. It has an expected life of 7 years at which time its salvage value will be $7,500. Operating and maintenance expenses are estimated to be $13,000 per year. If the filtration system is not purchased, Aerotron Electronics will have to pay Bay City $42,000 per year for water purification. If the system is purchased, no water purification from Bay City will be needed. Aerotron Electronics must borrow 1/2 of the purchase price, but they cannot start repaying the loan for 2 years. The bank has agreed to 3 equal annual payments, with the 1st payment due at the end of year 2. The loan interest rate is 8% compounded annually. Aerotron Electronics' MARR is 10% compounded annually. Part a What is the annual worth of this investment? $
Aerotron Electronics is considering the purchase of a water filtration system to assist in circuit board manufacturing. The system costs $40,000. It has an expected life of 7 years at which time its salvage value will be $7,500. Operating and maintenance expenses are estimated to be $2,000 per year. If the filtration system is not purchased, Aerotron Electronics will have to pay Bay City $12,000 per year for water purification. If the system is purchased, no water purification from Bay City will be needed. Aerotron Electronics must borrow half of the purchase price, but they cannot start repaying the loan for 2 years. The bank has agreed to three equal annual payments, with the first payment due at end of year 2. The loan interest rate is 8% compounded annually. Aerotron Electronics’ MARR is 10% compounded annually. Solve, a. What is the internal rate of return of this investment? b. What is the decision rule for judging the attractiveness of investments based on internal rate of…
Aerotron Electronics is considering the purchase of a water filtration system to assist in circuit board manufacturing. The system costs $40,000. It has an expected life of 7 years at which time its salvage value will be $7,500. Operating and maintenance expenses are estimated to be $2,000 per year. If the filtration system is not purchased, Aerotron Electronics will have to pay Bay City $12,000 per year for water purification. If the system is purchased, no water purification from Bay City will be needed. Aerotron Electronics must borrow half of the purchase price, but it cannot start repaying the loan for 2 years. The bank has agreed to three equal annual payments, with the first payment due at the end of year 2. The loan interest rate is 8% compounded annually. Aerotron Electronics’ MARR is 10% compounded annually. Solve, a. What is the annual worth of this investment? b. What is the decision rule for judging the attractiveness of investments based on annual worth? c. Should…
A community is looking to build a dam over a stretch of river that is currently being used for recreation. The dam will generate electricity. The dam will have a useful life of 50 years after which its reservoir will be full of sediment and the dam will need to be removed. The following are the characteristics of the dam:Initial cost: $350,000,000Electricity produced: 200,000 MWh per year at $150/MWh Value of recreation lost: $20,000,000 per year a. If the social discount rate is a constant 2% per year, is the dam a good idea? Show your work and explain your rationale.
Garbage collection in the city are collected by garbage trucks which are operated by private contractor to ensure effective service to the public. One garbage truck will cost P3M with an annual maintenance cost of P50,000. The life of the truck is 5 years with a salvage value of P180,000. The contractor can hire a similar truck for P3400 a day. If money is worth 10% annually, how many days per year must the truck be used to warrant the purchase of the machine assuming it is used everyday for the whole year? Select the correct response: 158 221 239 200
A community is looking to build a dam over a stretch of river that is currently being used for recreation. The dam will generate electricity. The dam will have a useful life of 50 years after which its reservoir will be full of sediment and the dam will need to be removed. The following are the characteristics of the dam:Initial cost: $350,000,000Electricity produced: 200,000 MWh per year at $150/MWh Value of recreation lost: $20,000,000 per yea An electricity company is deciding whether or not to invest in electricity generation in the community. They expect the new power plant to have a lifetime of 15 years. Investment expenditures in each year is $9500, while operations and maintenance expenditures are $12,500. Fuel expenditures in each year are $50,000, and the plant is expected to generate 3500 kwh of electricity in each year. If the company’s discount rate is 5% and the price at which they expect to sell the electricity is $30,000 over that period, is the power plant a…