Fundamentals of Corporate Finance
11th Edition
ISBN: 9780077861704
Author: Stephen A. Ross Franco Modigliani Professor of Financial Economics Professor, Randolph W Westerfield Robert R. Dockson Deans Chair in Bus. Admin., Bradford D Jordan Professor
Publisher: McGraw-Hill Education
expand_more
expand_more
format_list_bulleted
Concept explainers
Videos
Textbook Question
Chapter 10, Problem 14QP
Project Evaluation [LO1] Your firm is contemplating the purchase of a new $425,000 computer-based order entry system. The system will be depreciated straight-line to zero over its five-year life. It will be worth $30,000 at the end of that time. You will save $ 130,000 before taxes per year in order
Expert Solution & Answer
Want to see the full answer?
Check out a sample textbook solution
Students have asked these similar questions
Your firm is contemplating the purchase of a new $500,000 computer-based order entry system. The system will be depreciated straight-line to zero over its five-year life and has no salvage value. You will save $210,000 per year in order processing costs, and you will be able to reduce working capital by $75,000. If the tax rate is 30 percent, what is the IRR for this project?
18.82%
20.94%
28.17%
Cannot be calculated from the information provided.
None of the above.
32) CGI Inc. is developing a new software platform, which requires an immediate investment of $780 000 and another
$260 000 in three years. Net returns expected are S450 000 after two years, $313 000 after four years, and $889 000
after six years. However, if they simply upgrade their current platform, it requires an immediate investment of S400
000, another $260 000 after two years, and $340 000 after four years. Net refurns are Sl87 500 per year for 8 years
Determine the net present value at 5.9% Which project is preferable according to the net present value criterion?
Upgrade by $53 309
Upgrade by $277 277
New Software platform by $76 $99
O New Software platform by $53 309
Economics
A new process for manufacturing lead pencils will
have a first cost of $35,000 and annual costs of
$17,000. The new process will double their
capacity. The extra income expected from the new
process is $22,000 per year. (a) What is the no-
return payback period for this project? (b) What is
the payback period at an interest rate of 10% per
year?
Chapter 10 Solutions
Fundamentals of Corporate Finance
Ch. 10.1 - What are the relevant incremental cash flows for...Ch. 10.1 - What is the stand-alone principle?Ch. 10.2 - Prob. 10.2ACQCh. 10.2 - Prob. 10.2BCQCh. 10.2 - Explain why interest paid is not a relevant cash...Ch. 10.3 - What is the definition of project operating cash...Ch. 10.3 - For the shark attractant project, why did we add...Ch. 10.4 - Prob. 10.4ACQCh. 10.4 - How is depreciation calculated for fixed assets...Ch. 10.5 - Prob. 10.5ACQ
Ch. 10.5 - Prob. 10.5BCQCh. 10.6 - Prob. 10.6ACQCh. 10.6 - Under what circumstances do we have to worry about...Ch. 10 - Prob. 10.1CTFCh. 10 - What should NOT be included as an incremental cash...Ch. 10 - Prob. 10.3CTFCh. 10 - An asset costs 24,000 and is classified as...Ch. 10 - Prob. 10.5CTFCh. 10 - Prob. 10.6CTFCh. 10 - Opportunity Cost [LO1] In the context of capital...Ch. 10 - Depreciation [LO1] Given the choice, would a firm...Ch. 10 - Net Working Capital [LO1] In our capital budgeting...Ch. 10 - Stand-Alone Principle [LO1] Suppose a financial...Ch. 10 - Prob. 5CRCTCh. 10 - Cash Flow and Depreciation [LOI] When evaluating...Ch. 10 - Capital Budgeting Considerations [LOI] A major...Ch. 10 - Prob. 8CRCTCh. 10 - Prob. 9CRCTCh. 10 - Prob. 10CRCTCh. 10 - Relevant Cash Flows [LO1] Parker Slone, Inc., is...Ch. 10 - Prob. 2QPCh. 10 - Calculating Projected Net Income [LO1] A proposed...Ch. 10 - Calculating OCF [LO1] Consider the following...Ch. 10 - OCF from Several Approaches [LO1] A proposed new...Ch. 10 - Calculating Depreciation [LO1] A piece of newly...Ch. 10 - Calculating Salvage Value [LO1] Consider an asset...Ch. 10 - Calculating Salvage Value [LO1] An asset used in a...Ch. 10 - Calculating Project OCF [LO1] Quad Enterprises is...Ch. 10 - Calculating Project NPV [LO1] In the previous...Ch. 10 - Prob. 11QPCh. 10 - NPV and Modified ACRS [LO1] In the previous...Ch. 10 - Project Evaluation [LO1] Dog Up! Franks is looking...Ch. 10 - Project Evaluation [LO1] Your firm is...Ch. 10 - Prob. 15QPCh. 10 - Calculating EAC [LO4] A five-year project has an...Ch. 10 - Calculating EAC [LO4] You are evaluating two...Ch. 10 - Calculating a Bid Price [LO3] Romo Enterprises...Ch. 10 - Cost-Cutting Proposals [LO2] Warmack Machine Shop...Ch. 10 - Comparing Mutually Exclusive Projects [LO1] Lang...Ch. 10 - Prob. 21QPCh. 10 - Prob. 22QPCh. 10 - Prob. 23QPCh. 10 - Comparing Mutually Exclusive Projects [LO4]...Ch. 10 - Equivalent Annual Cost [LO4] Compact fluorescent...Ch. 10 - Break-Even Cost [LO2] The previous problem...Ch. 10 - Break-Even Replacement [LO2] The previous two...Ch. 10 - Issues in Capital Budgeting [LO1] The debate...Ch. 10 - Replacement Decisions [LO2] Your small remodeling...Ch. 10 - Replacement Decisions [LO2] In the previous...Ch. 10 - Calculating Project NPV [LO1] You have been hired...Ch. 10 - Prob. 32QPCh. 10 - Calculating Required Savings [LO2] A proposed...Ch. 10 - Prob. 34QPCh. 10 - Calculating a Bid Price [LO3] Your company has...Ch. 10 - Replacement Decisions [LO2] Suppose we are...Ch. 10 - Conch Republic Electronics, Part 1 Conch Republic...Ch. 10 - Conch Republic Electronics, Part 1 Conch Republic...Ch. 10 - Conch Republic Electronics, Part 1 Conch Republic...Ch. 10 - Conch Republic Electronics, Part 1 Conch Republic...
Knowledge Booster
Learn more about
Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, finance and related others by exploring similar questions and additional content below.Similar questions
- 12 You will bid to supply 3 jets per year for each of the next three years to the Navy. To get set up, you will need $60 million in equipment, to be depreciated straight‐line to zero over three years, with no salvage value. Total fixed costs per year are $10 million, and variable costs are $12 million per jet. If the maximum you can offer is $22 million each, what should you receive in salvage value before taxes in year 3 for the equipment?arrow_forwardWestJet Airlines is considering purchasing 20 new planes that will save the company $25 million per year in fuel and maintenance costs for the next 10 years. If the cost of the new planes is $200 million dollars and WestJet's weighted average cost of capital (WACC) is 8.5%, what is the net present value (NPV) of the project? A. $4.4 million B. $30.4 million C. $50 million D. $0 E. -$200,000 Only typed answerarrow_forward15 UPS is considering the purchase of a electric truck that would cost $150,000 and would last for 5 years. At the end of 5 years, the truck would have a salvage value of $20,000. By reducing labor and other operating costs, the machine would provide annual cost savings of $45,000. The company requires a minimum return of 19% on all investment projects. The net present value of the proposed project is closest to (Ignore income taxes.): PV factor of $1 annuity for 5 years at 19% is 3.058 and PV of $1 over 5 years is 0.419 A. $85,000 B. -$12,390 C. -$4,010 D. $145,990arrow_forward
- show all excel formulas/ work answering the following: LO2 16. Project Evaluation Your firm is contemplating the purchase of a new $395,000 computer-based order entry system. The system will be depreciated straight-line to zero over its five-year life. It will be worth $30,000 at the end of that time. 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 Page 306 percent, what is the IRR for this project?LO2 17. Project Evaluation In the previous problem, suppose your required return on the project is 10 percent and your pretax cost savings are $135,000 per year. Will you accept the project? What if the pretax cost savings are only $95,000 per year?arrow_forwardProblem:15 Engine valves company is considering building an assembly plant .The decision has been narrowed down to two possibilities. The company desires to choose the best plant at a level of operation of 10,000 gadgets a month. Both plants have an expected life of 10 years and are expected to have any salvage value at the time of their retirements .The cost of capital is 10 percent . Assuming a zero income tax rate , suggest what would be the desirable choice ? Cost of the monthly output of 10,000 valves Large Plant Rs Small plant Rs Initial cost 30,00,000 22,93,500 Direct labour : First shift 15,00,000 per year 7,80,000 per year Second shift 9.00,000 per year Overheads 2,40,000 per year 2,10,000 per yeararrow_forwardEngineering economy - ENGR 3322 The International Parcel Service has installed a new radio frequency identification system to help reduce the number of packages that are incorrectly delivered. The capital investment in the system is $65,000, and the projected annual savings are tabled below. The system’s market value at the EOY five is negligible, and the MARR is 18% per year. Calculate the annual worth of the project. a. $ 9,750 b. $ 10,750 c. $ 11,750 d. None of the choicesarrow_forward
- Give me right solution according to the question.... Help me urgenttttttttt Installing an automated production system costing $278,000 is initially expected to save Zia corporation $52,000 in expenses annually. If the system needs $5000 in operating and maintenance costs each year and has a salvage values of $25,000 at Year 10, what is the IRR of this system? If the company wants to earn at least 12% on all investments, should this system be purchased?arrow_forwardPlease include the excel formula Your firm is contemplating the purchase of a new $535,000 computer-based order entry system. The system will be depreciated straight-line to zero over its five-year life. It will be worth $30,000 at the end of that time. You will save $165,000 before taxes per year in order processing costs, and you will be able to reduce working capital by $60,000 (this is a one-time reduction). If the tax rate is 24 percent, what is the IRR for this project? Input area: Initial investment $535,000 Pretax salvage value $30,000 Cost savings per year $165,000 Working capital reduction $60,000 Tax rate 24% Project and asset life 5 Output area: Aftertax salvage value Sell equipment Taxes Aftertax cash flow Year 0 Year 1 Year 2 Year 3 Year 4 Year 5 Costs Depreciation EBT…arrow_forwardThe federal government is planning to clean up the Great Pacific Garbage patch. It will cost $2bn in the first year and then $1bn in the following year. The benefits of the clean-up will be greater marine life, valued at $2bn for 3 years after the clean-up. What is the internal rate of return approximately? $4bn 10% 30% 40%arrow_forward
- Your firm is contemplating the purchase of a new $1,200,000 computer- based order entry system. The system will be depreciated straight-line to zero over its 10 (ten-) year life. It will be worth $100,000 at the end of that time. You will save $400,000 before taxes per year in order processing costs, and you will be able to reduce working capital by $120,000 (this is a 1 (one) time reduction). If the tax rate is 25 percent and discount rate is 10%, what is the NPV for this project?arrow_forward5 Dog Up! Franks is looking at a new sausage system with an installed cost of $904,800. This cost will be depreciated straight-line to zero over the project's 3-year life, at the end of which the sausage system can be scrapped for $139,200. The sausage system will save the firm $278,400 per year in pretax operating costs, and the system requires an initial investment in net working capital of $64,960. If the tax rate is 24 percent and the discount rate is 11 percent, what is the NPV of this project?arrow_forwardEngineering economy - ENGR 3322 The International Parcel Service has installed a new radio frequency identification system to help reduce the number of packages that are incorrectly delivered. The capital investment in the system is $65,000, and the projected annual savings are tabled below. The system’s market value at the EOY five is negligible, and the MARR is 18% per year. Calculate the return on investment of the project a. 36% b. 37% c. 38% d. None of the choicesarrow_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 Learning
Corporate 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
Capital Budgeting Introduction & Calculations Step-by-Step -PV, FV, NPV, IRR, Payback, Simple R of R; Author: Accounting Step by Step;https://www.youtube.com/watch?v=hyBw-NnAkHY;License: Standard Youtube License