You just entered grade 1 and you decide to open a lemonade stand that requires a one-time, up-front investment of $1,200 at the start of the project (which will be today). In the first year you expect to earn $100 in revenues from lemonade sales, and you expect sales to increase by $200 per year thereafter (so $300 in the second year of operations, etc.) Your costs are lemons. Lemons will cost you $300 per year each year. The project will last for 12 years until you graduate high school. At the end of the project, you can sell your industrial lemon squeezer for $400. Find the AEW of the lemonade stand over the 12-year period, evaluated at the current interest rate of 8%. The solution is within $20 of which of the following? C502 542 O582 622 None of the above

You just entered grade 1 and you decide to open a lemonade stand that requires a one-time, up-front investment of $1,200 at the start of the project (which will be today). In the first year you expect to earn $100 in revenues from lemonade sales, and you expect sales to increase by $200 per year thereafter (so $300 in the second year of operations, etc.) Your costs are lemons. Lemons will cost you $300 per year each year. The project will last for 12 years until you graduate high school. At the end of the project, you can sell your industrial lemon squeezer for $400. Find the AEW of the lemonade stand over the 12-year period, evaluated at the current interest rate of 8%. The solution is within $20 of which of the following? C502 542 O582 622 None of the above

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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Your bakery can produce 3,000 unit of bagel per week for 48 weeks of operation per year. You aim to stay in this business for five years. You can either make the dough for the bagels in house or buy them from a different source. If you make the dough in house, you face with annual labour costs: $30,000, annual safety regulation costs: $5,000 and annual material costs: $20,000. But, if you choose to buy the dough from a different source, you must have a special dough-mixer machine to make adjustment for your production. Therefore, you need to pay $5,000 for the dough mixer machine, which has $1,000 salvage value at the end of 5 years. Furthermore, you face with annual maintaining costs including labour costs: $20,000 and additional overhead costs: $10,000 Using this information, find the unit cost of buy the bagel option with MARR 20%. Question 4 options: a) Between $0.70 and $0.80 b) None of the answers are correct…
Assume that you are thinking about starting your own small business. You have made the following estimates regarding this opportunity: You can rent a location for your business at a cost of $36, 000 per year. The equipment costs incurred to start the business would total $250,000. The equipment would have a 5-year useful life and a salvage value of S 25,000. Your company's estimated sales per year would equal $350,000 and its variable cost of goods sold would be 30% of sales. Other operating costs would include $56, 000 per year in salaries, S4, 000 per year for insurance, $25, 000 per year for utilities, and a 3% sales commission. The payback period for this investment opportunity is closest to: Multiple Choice 4.08 years, 2.20 years. 3.80 years. 3.08 years.
Wendell’s Donut Shoppe is investigating the purchase of a new $40,000 donut-making machine. The new machine would permit the company to reduce the amount of part-time help needed, at a cost savings of $5,200 per year. In addition, the new machine would allow the company to produce one new style of donut, resulting in the sale of 2,000 dozen more donuts each year. The company realizes a contribution margin of $2.40 per dozen donuts sold. The new machine would have a six-year useful life. Required: 4. In addition to the data given previously, assume that the machine will have a $10,515 salvage value at the end of six years. Under these conditions, what is the internal rate of return? (Hint: You may find it helpful to use the net present value approach; find the discount rate that will cause the net present value to be closest to zero.) (Round your final answer to the nearest whole percentage.)
The company you work for just bought a robot priced at $40,000. This robot allowed for labor costs to be decreased by $15,000 for just the first year. This benefit was lowered by $1,500 for the following years. The robot will last 5 years. The interest rate is 6%. Give the present value of the robot. Show all formulas and work for solving.
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Assume that you are thinking about starting your own small business. You have made the following estimates regarding this opportunity: • You can rent a location for your business at a cost of $36,000 per year. The equipment costs incurred to start the business would total $250,000. The equipment would have a 5-year useful life and a salvage value of $25,000 Your company's estimated sales per year would equal $350,000 and its variable cost of goods sold would be 30% of sales. • Other operating costs would include $58,000 per year in salaries, $4,000 per year for insurance, $25,000 per year for utilities, and a 3% sales commission The simple rate of return for this investment opportunity is closest to: Multiple Choice 22.0% 19.0% 26.6% 15.7%
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.
You are considering buying a machine to produce widgets (again!). It takes you one year to finetune the machine so that it produces exactly the kind of widgets you want. The machine costs $40,000 today and produces 100,000 widgets in year 2. (You cannot produce in year 1 because you have to fine-tune the machine first.) Expected revenues are $1 per widget. The cost of producing widgets depends on the type of gas the machine uses. The machine uses one unit of gas per widget produced. In its current version the machine runs on a gas called "Gas A". The price of "Gas A" in year 2 is uncertain and will be known only at the beginning of year 2. This price will be either $0.75 or $0.25 per unit of gas with equal probability. All revenues and costs (except the cost of the machine) accrue at the end of year 2. The discount rate is 10%. a) What is the NPV of the project? b) The manufacturer of the machine offers you a device that can be attached to the machine. You will have to buy the device…
3. Given: Your boss has asked you to investigate purchasing new machines for a processing line. The demand is 225,000 units/year, and the plant operates for 2080 hrs per year with a desired capacity cushion of 18%.implement to improve planting efficiency. You have found two machines that will fit your needs: 1. Machine 1 produces 60 units/hr, costs $225,000, and lasts 10 years. 2. Machine 2 produces 40 units/hr, costs $245,000, and lasts 20 years. Assume i= 8.0% and the salvage value is $0. Ignore taxes and depreciation Find: a. How many of machine 1 would be required? b. How many of Machine 2 would be required? c. What is the best choice based on engineering economics?
After spending a year and $48,000, you finally have the design of your new product ready. In order to start production, you will need $27,000 in raw materials and you will also need to use some existing equipment that you've fully depreciated, but which has a market value of $101,000. Your colleague notes that the new product could represent 10% of the company's overall sales and that 10% of overhead is $60,000. Your tax rate is 40%. As you start your analysis of the product, what should be your initial incremental free cash flow? The initial incremental free cash flow is $ sign if the answer is negative.) . (Round to the nearest dollar. Be sure to use a negative
You are the CFO for Play Now sports and you have 2 different machines to consider for purchase. The machines will be used to fabricate large size rubber balls that will sell for $30 each. The first machine will cost $45,000 and it will last for a period of 6 years. It will allow you to save $15,000 in year 1, $14,000 in year 2, $13,000 in year 3, $12,000 in year 4, $11,000 in year 5 and $10,000 in year 6. Using this machine will generate variable costs of products sold of $15 each. The other option is a machine that will last for only 5 years. It will cost $30,000 and it will save $8,000 each year. Variable costs, using this machine will be $18 each. Kruger has total fixed costs of $120,000 per year. a. Calculate the PAYBACK PERIOD for each machine for the 2 machines. b. Calculate the Return on investment for each machine. c. Calculate the break-even point for each machine. d. Which machine should Play Now pick and why ?

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