Essentials Of Investments
Essentials Of Investments
11th Edition
ISBN: 9781260013924
Author: Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher: Mcgraw-hill Education,
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Andronicus Corporation has the following jumbled information about an investment proposal:
Revenues in each of years 1-3 = $30,000
Year O initial investment = $50,000
Inventory level = $15,000 in year 1, $16,500 in year 2, and $10,000 in year 3
Production costs = $10,000 in each of years 1-3 Salvage value = $13,000 in year 4
Depreciation = 100% immediate bonus depreciation
Tax rate=21%
Customers pay with a 6-month lag
Draw up a set of cash flow forecasts as in Table 6.4. If the cost of capital is 8%, what is the
project's NPV? Assume that, if the project generates losses, those losses can be used to offset
profits elsewhere in the business.
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Transcribed Image Text:Andronicus Corporation has the following jumbled information about an investment proposal: Revenues in each of years 1-3 = $30,000 Year O initial investment = $50,000 Inventory level = $15,000 in year 1, $16,500 in year 2, and $10,000 in year 3 Production costs = $10,000 in each of years 1-3 Salvage value = $13,000 in year 4 Depreciation = 100% immediate bonus depreciation Tax rate=21% Customers pay with a 6-month lag Draw up a set of cash flow forecasts as in Table 6.4. If the cost of capital is 8%, what is the project's NPV? Assume that, if the project generates losses, those losses can be used to offset profits elsewhere in the business.
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