Give me correct answer and explanation.r Problem 12-28 (Algo) Working capital requirements in capital budgeting [LO12-4]The Spartan Technology Company has a proposed contract with the Digital Systems Company of Michigan. The initialinvestment in land and equipment will be $260,000. Of this amount, $210,000 is subject to five-year MACRS depreciation.The balance is in nondepreciable property. The contract covers six years; at the end of six years, the nondepreciable assetswill be sold for $50,000. The depreciated assets will have zero resale value. Use Table 12-12. Use Appendix B for anapproximate answer but calculate your final answer using the formula and financial calculator methods.The contract will require an additional investment of $56,000 in working capital at the beginning of the first year and, of thisamount, $36,000 will be returned to the Spartan Technology Company after six years.The investment will produce $81,000 in income before depreciation and taxes for each of the six years. The corporation is ina 25 percent tax bracket and has a 6 percent cost of capital.a. Calculate the net present value.Note: Do not round intermediate calculations and round your answer to 2 decimal places.Net present valueb. Should the investment be undertaken?○ YesO No

Net Present Value (NPV) is a financial tool utilized to evaluate an investment's profitability by…

Answered: The Spartan Technology Company has a…

EBK CFIN

6th Edition

ISBN:9781337671743

Author:BESLEY

Publisher:BESLEY

Chapter9: Capital Budgeting Techniques

Section: Chapter Questions

Problem 7PROB

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Problem 14C-3 (Algo) Income Taxes and Net Present Value Analysis [LO14-8) Lander Company has an opportunity to pursue a capital budgeting project with a five-year time horizon. Lander estimated the following costs and revenues for the project: Cost of equipment needed Working capital needed Repair of the equipment in two years Annual revenues and costs: Sales revenues Variable expenses Fixed out-of-pocket operating costs $ 420,000 $ 79,000 $ 27,500 $ 540,000 $ 275,000 $ 118,000 The piece of equipment mentioned above has a useful life of five years and zero salvage value. Lander uses straight-line depreciati for financial reporting and tax purposes. The company's tax rate is 30% and its after-tax cost of capital is 10%. When the project concludes in five years, the working capital will be released for investment elsewhere within the company. Click here to view Exhibit 14B-1 and Exhibit 14B-2, to determine the appropriate discount factor(s) using tables. 1. Income tax expense Year 1 Year…
Problem 12-28 (Algo) Working capital requirements in capital budgeting [LO12-4] The Spartan Technology Company has a proposed contract with the Digital Systems Company of Michigan. The initial investment in land and equipment will be $140,000. Of this amount, $100,000 is subject to five-year MACRS depreciation. The balance is in nondepreciable property. The contract covers six years; at the end of six years, the nondepreciable assets will be sold for $40,000. The depreciated assets will have zero resale value. Use Table 12-12. Use Appendix B for an approximate answer but calculate your final answer using the formula and financial calculator methods. The contract will require an additional investment of $44,000 in working capital at the beginning of the first year and, of this amount, $24,000 will be returned to the Spartan Technology Company after six years. The investment will produce $42,000 in income before depreciation and taxes for each of the six years. The corporation is in a 25…
ces An investment project provides cash inflows of $975 per year for eight years. a. What is the project payback period if the initial cost is $3,500? (Do not round intermediate calculations and round your answers to 2 decimal places, e.g., 32.16.) b. What is the project payback period if the initial cost is $4,550? (Do not round intermediate calculations and round your answers to 2 decimal places, e.g., 32.16.) c. What is the project payback period if the initial cost is $8,800? (Enter O if the project never pays back. Do not round intermediate calculations and round your answers to 2 decimal places, e.g., 32.16.) a. Payback period b. Payback period C. Payback period years years years
Ch 6. Seeing Red has a new project that will require fixed assets of $935,000, which will be depreciated on a 5-year MACRS schedule. The annual depreciation percentages are 20.00 percent, 32.00 percent, 19.20 percent, 11.52 percent, and 11.52 percent, respectively. The company has a tax rate of 28 percent. What is the depreciation tax shield for Year 3? Round to the nearest cent and format answer as "XX,XXX.XX"
Lee Enterprises accepts capital investment projects with a payback period of five years or less. Under this condition, which of the following projects would be acceptable? Project #1 Project #2 Annual cash flows $ 25,000 $ 40,000 Initial investment 125,000 160,000 A. Project #1 only. B. Project #2 only. C. Both Project #1 and Project #2. D. Neither Project #1 nor Project #2.
Question 2: KUST is evaluating a new project for hangu campus. The financial manager has determined that the after-tax cash flows for the project will be $10,000; $12,000; $15,000; $10,000; and $7,000, respectively, for each of the Years 1 through 5. The initial cash outlay will be $40,000. The management of KUST has set a maximum PBP of 3.5 years and hurdle rate 13% for projects of this type. Should this project be accepted or rejected while using budgeting technique?
Question 1 Spacevoyage Inc. is considering the installation of a new experimental laboratory which requires a key equipment costing $5,000,000. It is expected that the equipment will generate important experimental material worth $2,000,000 for each of the next 5 years. In the 6th year, the equipment will need an upgrade costing $2,500,000. Required return for this project is 15%. a) Which capital budgeting method between NPV and IRR will be most suitable for arriving at a decision on whether or not to get the equipment installed? Briefly explain your reasons. (50-75 words) b) Should the new equipment be installed? Support your answer with relevant computation. Question 2 While computing the cost of equity using the formula , rs=D1P0+grs=D1P0+g, we do not make any adjustment to express the cost of equity on an after-tax basis whereas while computing the cost of debt, a tax adjustment is required to arrive at after-tax cost of debt. Why is this so? Explain briefly. (75-150 words)
NPVs, IRRs, and MIRRs for Independent Projects Edelman Engineering is considering including two pieces of equipment, a truck and an overhead pulley system, in this year's capital budget. The projects are independent. The cash outlay for the truck is $19,000, and that for the pulley system is $20,000. The firm's cost of capital is 12%. After-tax cash flows, including depreciation, are as follows: Year Truck Pulley 1 $5,100 $7,500 2 5,100 7,500 3 5,100 7,500 4 5,100 7,500 5 5,100 7,500 Calculate the IRR, the NPV, and the MIRR for each project, and indicate the correct accept/reject decision for each. Do not round intermediate calculations. Round the monetary values to the nearest dollar and percentage values to two decimal places. Use a minus sign to enter negative values, if any. Truck Pulley Value Decision Value Decision IRR % -Select-AcceptRejectItem 2 % -Select-AcceptRejectItem 4 NPV $ -Select-AcceptRejectItem 6…
NPVs, IRRs, and MIRRs for Independent Projects Edelman Engineering is considering including two pieces of equipment, a truck and an overhead pulley system, in this year's capital budget. The projects are independent. The cash outlay for the truck is $15,000, and that for the pulley system is $21,000. The firm's cost of capital is 11%. After-tax cash flows, including depreciation, are as follows: Year Truck Pulley 1 $5,100 $7,500 2 5,100 7,500 3 5,100 7,500 4 5,100 7,500 5 5,100 7,500 Calculate the IRR, the NPV, and the MIRR for each project, and indicate the correct accept/reject decision for each. Do not round intermediate calculations. Round the monetary values to the nearest dollar and percentage values to two decimal places. Use a minus sign to enter negative values, if any.
NPVs, IRRs, and MIRRs for Independent Projects Edelman Engineering is considering including two pieces of equipment, a truck and an overhead pulley system, in this year's capital budget. The projects are independent. The cash outlay for the truck is $15,000, and that for the pulley system is $21,000. The firm's cost of capital is 11%. After-tax cash flows, including depreciation, are as follows: Year Truck Pulley 1 $5,100 $7,500 2 5,100 7,500 3 5,100 7,500 4 5,100 7,500 5 5,100 7,500 Calculate the IRR, the NPV, and the MIRR for each project, and indicate the correct accept/reject decision for each. Do not round intermediate calculations. Round the monetary values to the nearest dollar and percentage values to two decimal places. Use a minus sign to enter negative values, if any. Truck Pulley Value Decision Value Decision IRR % Accept % Accept NPV $ Accept $ Accept MIRR % Accept…
36 Determine the capitalized cost of a research laboratory which requires P5,000,000 for original construction; P100,000 at the end of every year for the first 5 years and then P147,980 each year thereafter for operating expenses, and P500,000 every 6 years for replacement of equipment with interest at 12% per annum? A. 6,441,350 B. 6,067,015 C. 6,632,445 D. 6,573,650 E. None of the above
6. U3 Company is considering three long-term capital investment proposals. Each investment has a useful life of 5 years. Relevant data on each project are as follows. Project Bono Project Edge Project Clayton Capital investment $160,000 $175,000 $200,000 Annual net income: Year 1 18,000 14,000 27,000 14,000 23,000 17,000 16,000 21,000 3 14,000 13,000 4 14,000 12,000 12,000 14,000 9,000 $ 96,000 Total $ 72,000 $ 70,000 Depreciation is computed by the straight-line method with no salvage value. The company's cost of capital is 15%. (Assume that cash flows occur evenly throughout the year.) Instructions a. Compute the cash payback period for each project. (Round to two decimals.) b. Compute the net present value for each project. (Round to nearest dollar.) C. Compute the annual rate of return for each project. (Round to two decimals.) d. Which project do you recommend? Why? 2.

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