esProblem 12-27 (Algo) MACRS depreciation and net present value [LO12-4]Universal Electronics is considering the purchase of manufacturing equipment with a 10-year midpoint in its asset depreciation range(ADR). Carefully refer to Table 12-11 to determine in what depreciation category the asset falls. (Hint: It is not 10 years.) The asset willcost $220,000, and it will produce earnings before depreciation and taxes of $72,000 per year for three years, and then $35,000 ayear for seven more years. The firm has a tax rate of 25 percent. Assume the cost of capital is 14 percent. In doing your analysis, if youhave years in which there is no depreciation, merely enter a zero for depreciation. Use Table 12-12. Use Appendix B for anapproximate answer but calculate your final answer using the formula and financial calculator methods.a. Calculate the net present value.Note: Do not round intermediate calculations and round your answer to 2 decimal places.Net present valueb. Based on the net present value, should Universal Electronics purchase the asset?● YesO No

Net Present Value (NPV) is a financial metric used to evaluate the profitability of an investment or…

Answered: Universal Electronics is considering…

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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You have been given the following information on a project: It has a 3-year lifetime The initial investment in the project will be $28 million, and the investment will be depreciated straight-line, down to a salvage value of $6 million at the end of the fourth year. The revenues are expected to be $20 million next year and to grow 6% a year after that for the remaining two years. The cost of goods sold, excluding depreciation, is expected to be 53% of revenues. The tax rate is 0.36. Estimate the after-tax return on capital, by year, to find the average for the project. (Round answer to four decimal places.)
Nguyen Company has an opportunity to purchase an asset that will cost company $59,000. The asset is expected to add $23,000 per year to the company’s net income. Assuming the asset has a five-year useful life and zero salvage value, the unadjusted rate of return based on the average investment will be ?
Pharoah Oil Company is considering investing in a new oil well. It is expected that the oil well will increase annual revenues by $122,480 and will increase annual expenses by $65,000 including depreciation. The oil well will cost $468,000 and will have a $11,000 salvage value at the end of its 10-year useful life. Calculate the annual rate of return. (Round answer to 0 decimal places, eg. 13%) Annual rate of return %
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Green Power Company is considering acquiring a new machine that will last 14 years and it can be purchased right now for 116,319 dollars; maintenance will cost 23,444 dollars the first year, increasing by 6,434 dollars per year thereafter (e.g. maintenance at the end of year two is equal to 23,444 plus 6,434 dollars). If the interest rate is 7% per year, compounded annually, how much money should the company set aside now to purchase and provide for the future maintenance of this machine (NPV)? (note: round your answer to the nearest cent and do not include spaces, currency signs, or commas)
You are considering a large CNC equipment purchase. You will need an initial deposit of $165,000. The annual revenues expected to come from the use of the CNC equipment are $85,000 starting in year 1 increasing by $4000 each year (i.e. $85,000 in year 1, $89,000 in year 2, etc.). Annual operating and maintenance costs are expected to be $35,000 every year starting in year 1. The equipment is expected to last for 15 years. What is the ROR? Question 6 Part C: Provide the ROR for the purchase. Enter your answer in the form 12.34 (for example, 12.34% would be entered as 12.34)
A machine that costs $8,000 is expected to operate for 10 years. The estimated salvage value at the end of 10 years is $0. The machine is expected to save the company $1,554 per year before taxes and depreciation. The company depreciates its assets on a straight-line basis and has a marginal tax rate of 35 percent. What is the internal rate of return on this investment?
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To expand its product offerings, BreesCo will be installing $1,849,032 worth of new fixtures. These fixtures will be depreciated straight-line to zero over 4 years. What is the annual depreciation expense associated with these fixtures? (Enter the magnitude of your response rounded to the nearest dollar)
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Click to see additional instructions A company is considering an investment in a new product with a 10-year horizon (product will be sold for 10 years). The upfront investment is $5 million and it is assumed to depreciate on a straight-line basis for 10 years, with no residual value. Fixed costs are assumed to be $550,000 per year. The company estimates variable cost per unit (v) to be $120 and expects to sell each unit for $425. There are no taxes and the required rate of return is 17% per year. Assume that the investment would occur today, and all future cash-flows will occur at the end of each year beginning in one year. What is the annual financial breakeven quantity? [Keep at least 3 decimals for intermediate answers. Round your final answer UP to the next highest WHOLE unit. (ie 421.2 would be rounded to 422)]

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