Essentials Of Investments
11th Edition
ISBN: 9781260013924
Author: Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher: Mcgraw-hill Education,
expand_more
expand_more
format_list_bulleted
Question
thumb_up100%
Your firm is contemplating the purchase of a new $575,000 computer-based order entry system. The system will be |
Expert Solution
This question has been solved!
Explore an expertly crafted, step-by-step solution for a thorough understanding of key concepts.
This is a popular solution
Trending nowThis is a popular solution!
Step by stepSolved in 2 steps with 2 images
Knowledge Booster
Similar questions
- our firm is contemplating the purchase of a new $1,998,000 computer-based order entry system. The system will be depreciated straight-line to zero over its 5-year life. It will be worth $194,400 at the end of that time. You will be able to reduce working capital by $270,000 (this is a one-time reduction). The tax rate is 22 percent and your required return on the project is 22 percent and your pretax cost savings are $850,650 per year. Show equations using excel a. What is the NPV of this project? b. What is the NPV if the pretax cost savings are $612,450 per year? c. At what level of pretax cost savings would you be indifferent between accepting the project and not accepting it?arrow_forwardThe president of Real Time Inc. has asked you to evaluate the proposed acquisition of a new computer. The computer's price is $40,000, and it falls into the MACRS 3-year class. Purchase of the computer would require an increase in net operating working capital of $5,000, which would be recovered when the computer is sold. The computer would increase the firm's before-tax revenues by $20,000 per year but would also increase operating costs by $5,000 per year. The computer is expected to be used for 3 years and then be sold for $20,000. The firm's marginal tax rate is 22 percent, and the project's cost of capital is 14 percent.What is the total value of the terminal year non-operating cash flows at the end of Year 3? Round it to a whole dollar, and do not include the $ sign. Year MACRS Percent 1 0.33 2 0.45 3 0.15 4 0.07arrow_forwardBetter Mousetrap's research laboratories just purchased a new executive jet for its president. The jet is currently underutilized, and management is considering allowing other officers to use it. This move would save $15,500 per year in real terms in airline bills. Offsetting this benefit is the notion that the jet will have to be replaced a year sooner than originally planned. If the jet cost $1,050,000 and was originally expected to last eight years, should management allow other officers to use the jet? The real opportunity cost of is 15%. Yes, because the present value of saving, $64,486.51, is greater than the present value of cost, $57.966.48. No, because the present value of saving. $69.553.48 is less than the present value of cost, $87,038.26. No, because the present value of saving, $64.486.51, is less than the present value of cost, $76,492.59. No, because the present value of saving, $69,553.48, is Igreater than the present value of cost, $65,732.14.arrow_forward
- Your firm is contemplating the purchase of a new $595,000 computer-based order entry system. The system will be depreciated straight-line to zero over its five-year life. It will be worth $63,000 at the end of that time. You will save $225,000 before taxes per year in order processing costs, and you will be able to reduce working capital by $78,000 (this is a one-time reduction). If the tax rate is 23 percent, what is the IRR for this project? Note: Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16. IRRarrow_forwardYour firm is contemplating the purchase of a new $410,000 computer-based order entry system. The system will be depreciated straight-line to zero over its five-year life. You will save $125,000 before taxes per year in order processing costs, and you will be able to reduce working capital by $35,000 at the beginning of the project. Working capital will revert back to normal at the end of the project. If the tax rate is 21 percent, what is the IRR for this project?arrow_forwardYour company is deciding whether to invest in a new machine. The new machine will increase cash flow by $435,000 per year. You believe the technology used in the machine has a 10-year life; in other words, no matter when you purchase the machine, it will be obsolete 10 years from today. The machine is currently priced at $2.8 million. The cost of the machine will decline by $215,000 per year until it reaches $2.155 million, where it will remain. If your required return is 9 percent, calculate the NPV today. (A negative answer should be indicated by a minus sign. Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.) If your required return is 9 percent, calculate the NPV if you wait to purchase the machine until the indicated year. (A negative answer should be indicated by a minus sign. Do not round intermediate calculations and round your answers to 2 decimal places, e.g., 32.16.) Should you purchase…arrow_forward
- The president of Real Time Inc. has asked you to evaluate the proposed acquisition of a new computer. The computer's price is $70,000, and it falls into the MACRS 3-year class. Purchase of the computer would require an increase in net operating working capital of $6,000. The computer would increase the firm's before-tax revenues by $30,000 per year but would also increase operating costs by $19,000 per year. The computer is expected to be used for 3 years and then be sold for $25,000. The firm's marginal tax rate is 40 percent, and the project's cost of capital is 14 percent.What is the net cash flow at t = 0? Cash outflow should be in negative number, e.g., -33,000, and do not include the $ sign.arrow_forwardA corporation is considering purchasing a machine that will save $150,000 per year before taxes. The cost of operating the machine (including maintenance) is $30,000 per year. The machine will be needed for five years, after which it will have a zero salvage value. MACRS depreciation will be used, assuming a three-year class life. The marginal income tax rate is 25%. If the firm wants 15% return on investment after taxes, how much can it afford to pay for this machine? If the firm wants 15% return on investment after taxes, it can afford to pay ?.arrow_forwardAfter spending $9,600 on client-development, you have just been offered a big production contract by a new client. The contract will add $196,000 to your revenues for each of the next five years and it will cost you $96,000 per year to make the additional product. You will have to use some existing equipment and buy new equipment as well. The existing equipment is fully depreciated, but could be sold for $45,000 now. If you use it in the project, it will be worthless at the end of the project. You will buy new equipment valued at $29,000 and use the 5-year MACRS schedule to depreciate it. It will be worthless at the end of the project. Your current production manager earns $79,000 per year. Since she is busy with ongoing projects, you are planning to hire an assistant at$38,000 per year to help with the expansion. You will have to immediately increase your inventory from $20,000 to $30,000. It will return to $20,000 at the end of the project is 21% and your discount rate is 14.7%. What…arrow_forward
- Your firm is contemplating the purchase of a new $595,000 computer-based order entry system. The system will be depreciated straight-line to zero over its five-year life. It will be worth $63,000 at the end of that time. You will save $225,000 before taxes per year in order processing costs, and you will be able to reduce working capital by $78,000 (this is a one-time reduction). If the tax rate is 23 percent, what is the IRR for this project? Note: Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16. IRR Answer is complete but not entirely correct. 8.96arrow_forwardThe president of Real Time Inc. has asked you to evaluate the proposed acquisition of a new computer. The computer's price is $40,000, and it falls into the MACRS 3-year class. Purchase of the computer would require an increase in net operating working capital of $2,000. The computer would increase the firm's before-tax revenues by $26,000 per year but would also increase operating costs by $18,000 per year. The computer is expected to be used for 3 years and then be sold for $25,000. The firm's marginal tax rate is 40 percent, and the project's cost of capital is 14 percent.What is the operating cash flow in Year 2? Round it to a whole dollar, and do not include the $ sign. Year MACRS Percent 1 0.33 2 0.45 3 0.15 4 0.07arrow_forwarda company is considering the purchase of a new machine for 480,000. Management predicts that the machine can produce sales of 180,000 each year for the next 10 years. Expenses are expected to include direct materials, direct labor, and factory overhead totaling 120,000 per year including depreciation of 30,000 per year. The company's tax rate is 40%. What is the payback period for the new machine?arrow_forward
arrow_back_ios
SEE MORE QUESTIONS
arrow_forward_ios
Recommended textbooks for you
- Essentials Of InvestmentsFinanceISBN:9781260013924Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.Publisher:Mcgraw-hill Education,
- Foundations Of FinanceFinanceISBN:9780134897264Author:KEOWN, Arthur J., Martin, John D., PETTY, J. WilliamPublisher:Pearson,Fundamentals of Financial Management (MindTap Cou...FinanceISBN:9781337395250Author:Eugene F. Brigham, Joel F. HoustonPublisher:Cengage LearningCorporate Finance (The Mcgraw-hill/Irwin Series i...FinanceISBN:9780077861759Author:Stephen A. Ross Franco Modigliani Professor of Financial Economics Professor, Randolph W Westerfield Robert R. Dockson Deans Chair in Bus. Admin., Jeffrey Jaffe, Bradford D Jordan ProfessorPublisher:McGraw-Hill Education
Essentials Of Investments
Finance
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Mcgraw-hill Education,
Foundations Of Finance
Finance
ISBN:9780134897264
Author:KEOWN, Arthur J., Martin, John D., PETTY, J. William
Publisher:Pearson,
Fundamentals of Financial Management (MindTap Cou...
Finance
ISBN:9781337395250
Author:Eugene F. Brigham, Joel F. Houston
Publisher:Cengage Learning
Corporate Finance (The Mcgraw-hill/Irwin Series i...
Finance
ISBN:9780077861759
Author:Stephen A. Ross Franco Modigliani Professor of Financial Economics Professor, Randolph W Westerfield Robert R. Dockson Deans Chair in Bus. Admin., Jeffrey Jaffe, Bradford D Jordan Professor
Publisher:McGraw-Hill Education