You are asked to evaluate a project proposal for Edmonton Plaza. The equipment that would be used would have a constantannual capital cost allowance over the project's 3-year life and a zero salvage value. This project would require someadditional working capital that would be recovered at the end of the project's life. Revenues and cash operating costs areexpected to be constant over the project's 3-year life. What is the project's NPV? This question is worth 15% of yourgrade.WACC10.0%Net investment in fixed assets (basis)65,000Required new working capital10,000Annual capital cost allowance21,665Sales revenues, each year70,000Cash operating costs, each year25,000Tax rate35.0%O a. 26,584O b. 28,913O c. 24,111O d. 22,318

answer =dd=22,318 is a correct answer. full explanation given below.Explanation:Step 1: Step 2: Step…

Answered: You are asked to evaluate a project…

Corporate Fin Focused Approach

5th Edition

ISBN:9781285660516

Author:EHRHARDT

Publisher:EHRHARDT

Chapter11: Cash Flow Estimation And Risk Analysis

Section: Chapter Questions

Problem 2STP

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Garden-Grow Products is considering a new investment whose data are shown below. The equipment would be depreciated on a straight-line basis over the project's 3-year life, would have a zero salvage value, and would require some additional working capital that would be recovered at the end of the project's life. Revenues and other operating costs are expected to be constant over the project's life. What is the project's NPV? (Hint: Cash flows are constant in Years 1 to 3.) Project cost of capital (r) Net investment in fixed assets (basis) Required new working capital Straight-line deprec. rate Sales revenues, each year Operating costs (excl. deprec.), each year Tax rate a. $31,573 b. $30,069 c. $36,550 d. $34,809 e. $33,152 10.0% $75,000 $15,000 33.333% $75,000 $25,000 25.0%
Foley Systems is considering a new investment whose data are shown below. The equipment would be depreciated on a straight-line basis over the project's 3-year life, would have a zero salvage value, and would require additional net operating working capital that would be recovered at the end of the project's life. Revenues and other operating costs are expected to be constant over the project's life. What is the project's NPV? (Hint: Cash flows from operations are constant in Years 1 to 3.) WACC Net investment in fixed assets (basis) Required net operating working capital Straight-line depreciation rate Annual sales revenues Annual operating costs (excl. depr.) Tax rate A. $23,852 B. $25,045 C. $26,297 10.0% $75,000 $15,000 33.333% $75,000 $25,000 35.0% D. $27,612 E. $28,993 Can this be found using the financial calculator?
A company is considering a new investment whose data are shown below. The equipment would be depreciated on a straight-line basis over the project's 3-year life, would have a zero salvage value, and would require some additional working capital that would be recovered at the end of the project's life. Revenues and other operating costs are expected to be constant mer the project's life. What is the project's NPV? Project cost of capital (r) 10% Net investment in fixed assets (basis) $65,000 Required new working capital $15,000 Straight-line deprec. rate 33.333% Sales revenues, each year $75,000 Operating costs (excl. deprec.), each year $25,000 Tax rate 35.0% a. $26,297 b. $30,950 c. $23,852 d. $23,045 e. $33,993
Which of the following describes the NPV decision rule? Accept if the cost of the project is recouped within 3 years. Accept if the PV of the cash inflows of the project divided by the absolute value of the cost of the project is greater than one. Accept if the PV of the cash inflows from the project minus the cost of the project is greater than zero Accept if the average net income from the project divided by the average book value is greater than the target required Accept if the rate of return earned on the project is greater than the required return for the project.
Roberts Company is considering an investment in equipment that is capable of producing more efficiently than the current technology. The outlay required is 2,293,200. The equipment is expected to last five years and will have no salvage value. The expected cash flows associated with the project are as follows: Required: 1. Compute the projects payback period. 2. Compute the projects accounting rate of return. 3. Compute the projects net present value, assuming a required rate of return of 10 percent. 4. Compute the projects internal rate of return.
ABC company is considering a new investment whose data are shown below for which you need to estimate the cash flows. The equipment asset would be depreciated on a straight-line basis over the project's 3-year life, would have a salvage value 1000 at the end of the 3 yrs project. ABC company would require some additional working capital that would be recovered at the end of the project's life. Revenues and other operating costs are expected to be constant over the project's life. a) Estimate the Cash Flows and find the NPV and IRR of the project b) Find the sensitivity of NPV with respect to the WACC for +30% and -30% devaition from the base value of 10%
A potential project has a net present value (NPV) of $28,356. This amount includes the initial cash outlay of $30,000. The correct decision would be to: O proceed with the project because the NPV is pósitive. O cancel the project because the NPV is lower than the initial cash outlay.
1.Assuming you are facing with making a decision on a large capital investment proposal. the capital investment amount is $ Estimated the study period is years .The annual revenue at the end of each year is $ and the estimated annual year-end expense is $ starting in year Assuming a market value at the end year is $ and the benchmark rate is 10%, please answer the following questions: 1.Please design this investment project to fill the proper number in blank space to let the project is feasible in economics( 2.To give the cash flow chart of the project(
(#11) Genoa Company is considering a new investment whose data are shown below. The equipment would be depreciated on a straight-line basis over the project's 3-year life, would have a zero salvage value, and would require additional net operating working capital that would be recovered at the end of the project's life. Revenues and other operating costs are expected to be constant over the project's life. What is the project's NPV? WACC 12% Net investment in fixed assets (basis) $75,000 Required net operating working capital $15,000 Straight-line depreciation rate 33.333% Annual sales revenues $79,000 Annual operating costs (excl. depr.) $25,000 Tax rate 35.0%
The IRR evaluation method assumes that cash flows from the project are reinvested at the same rate equal to the IRR. However, in reality the reinvested cash flows may not necessarily generate a return equal to the IRR. Thus, the modified IRR approach makes a more reasonable assumption other than the project’s IRR. Consider the following situation: Grey Fox Aviation Company is analyzing a project that requires an initial investment of $400,000. The project’s expected cash flows are: Year Cash Flow Year 1 $375,000 Year 2 –150,000 Year 3 400,000 Year 4 425,000 Grey Fox Aviation Company’s WACC is 7%, and the project has the same risk as the firm’s average project. Calculate this project’s modified internal rate of return (MIRR): 25.38% 24.11% 29.19% 26.65% Points: Close Explanation Explanation: If Grey Fox Aviation Company’s managers select projects based on the MIRR criterion, they should selector 1…
RiverRocks, Inc., is considering a project with the following projected free cash flows: Year 0 Cash Flow - $50.1 (in millions) A. Cash Flows (millions) - $50.1 The timeline for the project's cash flows is: (Select the best choice below.) Year B. Cash Flows (millions) The firm believes that, given the risk of this project, the WACC method is the appropriate approach to valuing the project. RiverRocks' WACC is 12.5%. Should it take on this project? Why or why not? Year C. Cash Flows (millions) Year D. Cash Flows (millions) Year 0 $50.1 0 - $50.1 0 $50.1 0 - $9.8 1 $9.8 1 $9.8 1 1 $9.8 - $9.8 1 - $20.9 2 $20.9 2 $20.9 2 2 $20.9 - $20.9 +2 - $19.3 3 $19.3 3 $19.3 3 - $19.3 3 $19.3 3 - $14.7 4 $14.7 4 $14.7 4 - $14.7 4 $14.7 4
Do the following problems. You must show your work.c) Find the IRR and MIRR of the following project and make your decision. Assume that the project's cost of capital (or WACC) is 4%. Project X that costs $30 million is expected to generate $13m per year for 3 years. Is this project acceptable?

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