shj.3 Rosman Company has an opportunity to pursue a capital budgeting project with a five-year time horizon. After careful study, Rosmanestimated the following costs and revenues for the projectCost of new equipmentSale of old equipment no longer neededAnnual cash inflowsWorking capital neededEquipment maintenance in each of Years 3 and 4$420,000$ 80,000$135,000$ 65,000$ 20,000cesThe new piece of equipment mentioned above has a useful life of five years and zero salvage value. The old piece of equipmentmentioned above would be sold at the beginning of the project and there would be no gain or loss realized on its sale. Rosman usesthe straight-line depreciation method for financial reporting and the CCA rate for tax purposes is 20%. The company's tax rate is 30%and its after-tax cost of capital is 12%. When the project concludes in five years the working capital will be released for investmentelsewhere within the company.Required:1. Compute the net present value of this investment opportunity. (Round your PV factor to 4 decimal places and all the othercalculations to nearest whole dollar.)Net present value2. Would you recommend that the contract be accepted?O YesO No

Net present value is a method of evaluating the worth of the investments by accounting for the…

Answered: Rosman Company has an opportunity to…

EBK CONTEMPORARY FINANCIAL MANAGEMENT

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter11: Capital Budgeting And Risk

Section: Chapter Questions

Problem 15P

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Garnette Corp is considering the purchase of a new machine that will cost $342,000 and provide the following cash flows over the next five years: $99,000, $88,000, $92,000. $87,000, and $72,000. Calculate the IRR for this piece of equipment. For further instructions on internal rate of return in Excel. see Appendix C.
Consolidated Aluminum is considering the purchase of a new machine that will cost $308,000 and provide the following cash flows over the next five years: $88,000, 92,000, $91,000, $72,000, and $71,000. Calculate the IRR for this piece of equipment. For further instructions on internal rate of return in Excel, see Appendix C.
Gallant Sports s considering the purchase of a new rock-climbing facility. The company estimates that the construction will require an initial outlay of $350,000. Other cash flows are estimated as follows: Assuming the company limits its analysis to four years due to economic uncertainties, determine the net present value of the rock-climbing facility. Should the company develop the facility if the required rate of return is 6%?
Rosman Company has an opportunity to pursue a capital budgeting project with a five-year time horizon. After careful study, Rosman estimated the following costs and revenues for the project: Cost of new equipment Sale of old equipment no longer needed Annual cash inflows Working capital needed Equipment maintenance in each of Years 3 and 4 $420,000 $ 80,000 $135,000 $ 65,000 $ 20,000 The new piece of equipment mentioned above has a useful life of five years and zero salvage value. The old piece of equipment mentioned above would be sold at the beginning of the project and there would be no gain or loss realized on its sale. Rosman uses the straight-line depreciation method for financial reporting and the CCA rate for tax purposes is 20%. The company's tax rate is 30% and its after-tax cost of capital is 12%. When the project concludes in five years the working capital will be released for investment elsewhere within the company. Required: 1. Compute the net present value of this…
The industry has invested $100,000. They are trying to decide between two alternatives uses of the funds Project A Project B Cost of equipment required $100,000 $0 Working capital investment required $0 $100,000 Annual Cash Inflows $21,000 $16,000 Salvage value of equipment in 6 yrs $8,000 $0 Life of project 6 years 6 years The working capital needed for project B will be released at the end of the six-years for investment elsewhere. The industry discount rate 14%. 1.Compute the net present value of project A 2. Compute the net present value of project B Which investment alternative if either would you recommend to the company to accept? Thank you,
Rosman Company has an opportunity to pursue a capital budgeting project with a five-year time horizon. After careful study, Rosman estimated the following costs and revenues for the project: Cost of new equipment needed Sale of old equipment no longer needed Working capital needed Equipment maintenance in each of Years 3 and 4 Annual revenues and costs: Sales revenues Variable expenses Fixed out-of-pocket operating costs $430,000 $ 82,000 $ 67,000 $ 22,000 $430,000 $185,000 $104,000 The new piece of equipment mentioned above has a useful life of five years and zero salvage value. The old piece of equipment mentioned above would be sold at the beginning of the project and there would be no gain or loss realized on its sale. Rosman uses the straight-line depreciation method for financial reporting and tax purposes. The company's tax rate is 30% and its after-tax cost of capital is 11%. When the project concludes in five years the working capital will be released for investment elsewhere…
Manama Manufacturing has $170,000 to invest in either Project A or Project B. The following data are available on these projects: Project B Project A $170,000 Cost of equipment needed now $160,000 Working capital investment needed $0 $10,000 now Annual net operating cash inflows $45,000 $55,000 Salvage value of equipment in 10 years $30,000 $0 Click here to view Exhibit 14B-1 and Exhibit 14B-2, to determine the appropriate discount factor(s) using the tables provided. Both projects have a useful life of 10 years. At the end of 10 years, the working capital investment will be released for use elsewhere. Manama's discount rate is 12%. The net present value of Project A is closest to: A. $83,550 B. $91,800 OC. $93,910 $71.215 OOOO UD OD.
A company is evaluating a capital investment with the following projections: Initial Investment = $75,000 Salvage value = $15,000 Project life = 10 years Capital budgeting assumptions: Old Machine is fully depreciated Old machine annual operating cost: 40,000 Old machine annual maintenance cost: 10,000 New machine annual operating cost: 20,000 New machine annual maintenance cost: 9,000 Discount rate: 10% Tax rate: 20% What is the project's internal rate of return (IRR)?Answer as a whole number. 5% would be answered as 5.
Assume the followling Information for a capital budgeting proposal with a five-year time horizon: Initial investment: Cost of equipment (zero salvage value) $ 560,000 Annual revenues and costs: $ 300, 000 $ 130,000 $ 50,000 $ 40,000 Sales revenues Variable expenses Depreciation expense Fixed out-of-pocket costs Click here to view Exhibit 12B-1 and Exhibit 12B-2, to determine the appropriate discount factor(s) using the tables provided. If the company's discount rate is 12%, then the net present value for this Investment is closest to: Multiple Choice $271,600. $(171,600). $1271,600). $191,350).
Romanos Construction is analyzing its capital expenditure proposals for the purchase of equipment in the coming year. The capital budget is limited to $5,000,000 for the year. Laura Berenstein, staff analyst at Romanos, is preparing an analysis of the three projects under consideration by Chester Romanos, the company's owner. Data Table A B C D 1 Project A Project B Project C 2 Projected cash outflow 3 Net initial investment $3,000,000 $2,100,000 $3,000,000 4 Projected cash inflows 5 Year 1 $1,200,000 $1,200,000 $1,700,000 6 Year 2 1,200,000 600,000 1,700,000 7 Year 3 1,200,000 500,000 200,000 8 Year 4 1,200,000 100,000 9 Required rate of return 10% 10% 10% 1. Because the company's cash is limited, Romanos thinks the payback method should be used to choose between the capital budgeting projects. a. What are the…
McGloire Construction is analyzing its capital expenditure proposals for thepurchase of equipment in the coming year. The capital budget is limited to $5,000,000 for theyear. Lori Alleyne, staff analyst at McGloire’s, is preparing an analysis of the three projectsunder consideration by Joyanne McGloire, the company’s owner. A B C D 1 Project A Project B Project C 2 Projected cash outflow 3 Net initial investment $3 000 000 $1 500 000 $4 000 000 4 5 Projected cash inflows 6 Year 1 $1 000 000 $400 000 $2 000 000 7 Year 2 1 000 000 900 000 2 000 000 8 Year 3 1 000 000 800 000 200 000 9 Year 4 1 000 000 100 000 10 11 Required rate of return 10% 10% 10% 1. Because the company’s cash is limited, McGloire thinks the payback methodshould be used to choose between the capital budgeting projects.a. List two benefits and two limitations of using the payback method to choosebetween projects? b. Calculate the payback…
Findell Corporation is considering two projects, A and B, and it has gathered the following estimates for the projects Project A Project B Useful life 5 years 5 years Present value of cash inflows $84,440 $53,300 Present value of cash outflows $79,000 $46,000 What is the present value index for Project A? Multiple Choice 1.069 0.862 1.097 0.886

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