Revenues generated by a new fad product are forecast as follows:Year1234ThereafterRevenues$ 40,00030,00020,0005,0000Expenses are expected to be 40% of revenues, and working capital required in each year is expected to be 20% of revenues in thefollowing year. The product requires an immediate investment of $49,000 in plant and equipment.Required:a. What is the initial investment in the product? Remember working capital.b. If the plant and equipment are depreciated over 4 years to a salvage value of zero using straight-line depreciation, and the firm'stax rate is 20%, what are the project cash flows in each year?c. If the opportunity cost of capital is 10%, what is project NPV?d. What is project IRR?

Capital budgeting is a process that businesses use to evaluate and select long-term investment…

Required: a. What is the initial investment in the product? Remember working capital. b. If the plant and equipment are depreciated over 4 years to a salvage value of zero using straight-line depreciation, and the firm's tax rate is 20%, what are the project cash flows in each year? c. If the opportunity cost of capital is 10%, what is project NPV? d. What is project IRR?

Required: a. What is the initial investment in the product? Remember working capital. b. If the plant and equipment are depreciated over 4 years to a salvage value of zero using straight-line depreciation, and the firm's tax rate is 20%, what are the project cash flows in each year? c. If the opportunity cost of capital is 10%, what is project NPV? d. What is project IRR?

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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What is the NPV, payback period, and internal rate of return for Project A. With the initial cost of 1250000.000
A firm evaluates all of its projects by using the NPV decision rule. Year Cash Flow 0 -$ 27,000 1 23,000 14,000 8,000 a. At a required return of 25 percent, what is the NPV for this project? 2 WN 3 NPV b. At a required return of 34 percent, what is the NPV for this project? NPV
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You are analyzing a project and have developed the following estimates. The depreciation is $47,900 a year and the tax rate is 21 percent. What is the worst-case operating cash flow? Unit sales Sales price per unit Variable cost per unit Fixed costs -$2,545 $11,145 $88,855 $27,556 O $63,937 Base-Case Lower Bound Upper Bound 9,800 12,800 $34 $24 $ 9,200 11,300 $ 39 $25 $ 9,700 $44 $26 $ 10,200
Consider the following two mutually exclusive projects: Year Cash Flow (A) Cash Flow (B) 0 -$ 243,567 -$ 15,530 1 27,200 55,000 60,000 413,000 234 5,173 8,261 13,237 8,729 Whichever project you choose, if any, you require a 6 percent return on your investment. a. What is the payback period for Project A? Payback period
A capital project requires a $50,000 increase in working capital. It also requires equipment at a price of $200,000. It takes $20,000 to install the equipment and $15,000 to ship the equipment to the desired location. The income tax rate is 35% and equipment is depreciated for income tax purposes on a straight line basis.What is the project's initial cash flow?Group of answer choices A.200,000 B.120,000 C.285,000 D.235,000 E. 250,000
Get Answer please provide
u) Project P rcquires an mycsiment of $95,000 and is expected to produce cash inflow of $20,000 per ycar for 8 years. The cost of capital is 11% Required: a) Pay-back period b) NPV c) PI d) IRR Should you acccpt the project? Why or why not?
3. Consider a project with an initial investment of $60,000, a 8 year useful life (and study period), and a $9,000 salvage value. You expect an annual net revenue of $14,000 (before tax), a MARR before tax of 15%, and an effective tax rate of 35%. The capital equipment is to be depreciated using MACRS ADS and a 7 year class life, Using after-tax cash flow analysis, determine if this is a good investment.
Brunette Company is contemplating investing in a new piece of manufacturing machinery. The amount to be invested is $180,000. The present value of the future cash flows generated by the project is $163,000. Should they invest in this project? Oa. yes, because the rate of return on the project is equal to the desired rate of return used to calculate the present value of the future cash flows Ob. no, because net present value is +$17,000 Oc. no, because the rate of return on the project is less than the desired rate of return used to calculate the present value of the future cash flows Od. yes, because the rate of return on the project exceeds the desired rate of return used to calculate the present value of the future cash flows
In your first job with TBL Inc. your task is to consider a new project whose data are shown below. What is the project's Year 1 cash flow? The annual operating cash flows of the project can be calculated as follows: OCF = {[Sales - Operating Costs]*(1-Tax Rate)} + (Depreciation * Tax Rate) Sales revenues $225,250 Depreciation $78,847 Other operating costs $92,000 Tax rate 18%
Q1) How much is the Profitability Index? Q2) What is the Discounted Payback period of the project? Q3) What is the NPV of the Project?

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