Essentials Of Investments
11th Edition
ISBN: 9781260013924
Author: Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher: Mcgraw-hill Education,
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To overcome the impacts of saltwater intrusion, San Diego County is planning to build a Seawater Desalination Plant. Construction of the facility will take three years and cost $15,000,000. The facility has an operating life of 47 years which starts in three years (after completing the construction phase). The entire project, therefore, spans 50 years. There is no inflation during the entire life of the project, and that all benefits and costs are known with certainty (rather unlikely assumptions but OK for early planning). The operating costs are $100,000 per year. The project will treat 30,000,000 gallons of water per year, and analytical investigations have suggested that the project produces the benefit of $0.05 per gallon of the treated water. The state is going to provide a loan to finance 40% of the capital cost ($15M) at a borrowing rate of 6.25% with 20 equal annual payments, including principal and interest. Considering MARR of 10% please answer eh following questions.
With the given discount rate, calculate the
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- A proposed bridge on the interstate highway is being considered at the cost of 4 million dollars. It is expected that the bridge will have a life of 30 years. Construction costs will be paid by government agencies. Operation and maintenance costs are estimated to be $250,000 per year. Benefits to the public are estimated to be $900,000 per year. The building of the bridge will result in an estimated cost of $250,000 per year to the general public. The project requires a return of 5%. Determine the benefit/cost (B/C) ratio.arrow_forwardA proposal is being considered to improve an existing road connecting two medium size cities in West Africa to reduce transportation costs. The cost of the project is $1,000,000. Present annual transportation cost for all traffic amounts to $1,270,000 per year and would continue if no improvement is made. After the improvement, annual transportation costs are estimated to be $1,166,000. Assume the life of the project 20 years, and MARR is 12%. Should the project be undertaken? Evaluate this proposal by using the net present value method, benefit/cost method, and internal rate of return method. Assume costs appear at the beginning of each year while benefits at the end of a year.arrow_forwardAn airline is considering a project of replacement and upgrading of machinery that would improve efficiency. The new machinery costs $500 today and is expected to last for 5 years with no salvage value. Straight line depreciation will be used. Project inflows connected with the new machinery will begin in one year and are expected to be $300 each year for 5 consecutive years and project outflows will also begin in one year and are expected to be $150.00 each year for 5 consecutive years. The corporate tax rate is 30% and the required rate of retum is 7% Calculate the project's net present value. Place your answer in dollars and cents. Do not include a dollar sign or comma in your answer. Work your analysis with at least four decimal places of accuracy YOU ARE NOT FINISHED. NOW GO ON TO THE SECOND PARTI PART 2. Given your estimate of the NPV, should you accept or reject the project? Type the word "accept" if you believe you should go ahead with the project of the word "reject" if you…arrow_forward
- The city council is considering a proposal about purchasing a new landfill site. Both the current landfill and new landfill would be usable for the next 10 years. The purchase price is $279,000 and the preparatory work will cost $77,800. It is estimated that the new landfill will cost $51,000 less per year to operate than the current landfill. Assume a hurdle rate of 8%. Ignore tax impacts. Required: Calculate the net present value of the new landfill. Should the city council approve the project on financial grounds? Calculate the internal rate of return for the new landfill. Should the city council approve the project on financial grounds?arrow_forwardAn airline is considering a project of replacement and upgrading of machinery that would improve efficiency. The new machinery costs $300 today and is expected to last for 5 years with no salvage value. Straight line depreciation will be used. Project inflows connected with the new machinery will begin in one year and are expected to be $250 each year for 5 consecutive years and project outflows will also begin in one year and are expected to be $ 112.50 each year for 5 consecutive years. The corporate tax rate is 32% and the required rate of return is 9%. Calculate the project's net present value. YOU ARE NOT FINISHED. NOW GO ON TO THE SECOND PART! PART 2. Given your estimate of the NPV, should you accept or reject the project?arrow_forwardA proposed project requires an investment of $215,000 and will require an additional $25,000 for upgrades in year six. The income from the project is expected to be $64,000 in years one through five and $52,000 in years seven and eight. In year six, revenue equaled expenses (exclusive of the $25,000 spent for upgrades). There is no salvage value. If the external reinvestment rate (ε) of 6% is available, what is the rate of return for this project using the ERR method?arrow_forward
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