With the growing popularity of casual surf print clothing, two recent MBA graduates decided to broaden this casual surf concept to encompass a "surf lifestyle for the home." With limited capital, they decided to focus on surf print table and floor lamps to accent people's homes. They projected unit sales of these lamps to be 10,400 in the first year, with growth of 6 percent each year for the next five years. Production of these lamps will require $53,000 in net working capital to start. Total fixed costs are $137,000 per year, variable production costs are $20 per unit, and the units are priced at $62 each. The equipment needed to begin production will cost $595,000. The equipment will be depreciated using the straight-line method over a 5-year life and is not expected to have a salvage value. The tax rate is 24 percent and the required rate of return is 19 percent. What is the NPV of this project? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.) NPV

Wally loves your analysis. He has now asked you to evaluate potential new project investments. Both projects aim to make widgets. Widgets sell for $10 each. Project A will produce 4,500 units in the first year, 6,500 units in the second and third years and a whopping 44,000 units in the fourth year. Project A requires an investment of 3 machines each costing $25,000. Project B will produce 2,400 units in the first year, 2,200 units in the second year, 1,950 units in the third year and 1,460 units in the fourth year. Project B requires an initial investment of 1 machine worth $25,000. Wally has said that to make the analysis easier - you need not calculate depreciation on the machine, the tax shelter benefit or the residual value of the machine at the end of production. Wally just said I want you understand the cash flows from the information provided above. (a) Calculate the net present value for each of Project A and Project B, assuming a 15% cost of capital. (b) What is the IRR of…

With the growing popularity of casual surf print clothing, two recent MBA graduates decided to broaden this casual surf concept to encompass a “surf lifestyle for the home.” With limited capital, they decided to focus on surf print table and floor lamps to accent people’s homes. They projected unit sales of these lamps to be 11,500 in the first year, with growth of 8 percent each year for the next five years. Production of these lamps will require $75,000 in net working capital to start. Total fixed costs are $170,000 per year, variable production costs are $21 per unit, and the units are priced at $66 each. The equipment needed to begin production will cost $650,000. The equipment will be depreciated using the straight-line method over a 5-year life and is not expected to have a salvage value. The tax rate is 25 percent and the required rate of return is 18 percent. What is the NPV of this project? (Do not round intermediate calculations and round your answer to 2 decimal places,…

You are graduating soon and would like to start your own business manufacturing wine coolers. You collect the following information on the initial costs: Cost of Plant and Equipment = $500,000 Licensing and Legal Costs = $50,000 You can already claim an investment tax credit of 10% on plant and equipment, and the licensing and legal costs have already been incurred. You estimate that you can sell 1 million bottles a year at $1 a bottle. You estimate your costs as follows: Variable costs/bottle = $ 50 cents Fixed costs/year = $200,000 Assume that you had borrowed 60% of your initial investment in the previous question, using a five-year term loan, with an interest rate of 7.5%. Estimate the cash flows to equity on this project.

The Tuff Wheels was getting ready to start its development project for a new product to be added to its small, motorized vehicle line for children. The new product is called the Kiddy Dozer. It will look like a miniature bulldozer, complete with caterpillar tracks and a blade. Tuff Wheels has forecasted the demand and the cost to develop and produce the new Kiddy Dozer. The following table contains the relevant information for this project.   Development cost $900,000; Estimated development time 9 months; Pilot testing $200,000; Ramp-up cost $400,000; Marketing and support cost $150,000 per year; Sales and production volume 60,000 per year; Unit production cost $100; Unit price $170; Interest rate 8%   Tuff Wheels also has provided the project plan shown as follows. As can be seen in the project plan, the company thinks that the product life will be three years until a new product must be created.   Assume all cash flows occur at the end of each period. What is the net present value…

ABC Co is considering the launch of a new widget. If the product goes directly to the market, there is a 60% chance of success. For $500,000, the manager can conduct a focus group to increase the probability of success to 65%. Alternatively, the manager can pay a consulting firm $750,000 to research the market and refine the product. The consulting firm successfully launches new products 70% of the time. If the firm successfully launches the widget, the payoff will be $8 million. If the product is a failure, the NPV is $0.   Calculate the expected NPV if the managers go directly to the market.

ABC Residential Investors, LLP, is considering the purchase of a 120-unit apartment complex in Steel City, Pennsylvania. A market study of the area reveals that an average rental of $614 per month per unit could be realized in the appropriate market area. During the last six months, two very comparable apartment complexes have been sold in the same market area. The Oaks, a 140-unit project, sold for $9 million. Its rental schedule indicates that the average rent per unit is $578 per month. Palms, a 90-unit complex, is presently renting units at $678 per month, and its selling price was $6.6 million. The mix of number of bedrooms and sizes of units for both complexes is very similar to that of the subject property, and both appear to have normal vacancy rates of about 10 percent annually. All rents are net as tenants pay all utilities and expenses. Based on the data provided here, how would an appraiser establish an estimate of value? (Round intermediate calculations and final answers…