EBK CONTEMPORARY FINANCIAL MANAGEMENT
14th Edition
ISBN: 9781337514835
Author: MOYER
Publisher: CENGAGE LEARNING - CONSIGNMENT
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Chapter 10, Problem 2P
a)
Summary Introduction
To determine: The
b)
Summary Introduction
To determine: Whether the project accepted or not.
c)
Summary Introduction
To determine: The meaning of the present value amount.
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A firm wishes to bid on a contract that is expected to yield the following after-tax net cash flows at the end of each year:
Year
Net Cash Flow
1
$12,000
2
7,000
3
3,000
4
5,000
5
10,000
6
9,000
7
3,000
8
-$500
To secure the contract, the firm must spend $50,000 to retool its plant. This retooling will have no salvage value at the end of the 8 years. Comparable investment alternatives are available to the firm that earn 10 percent compounded annually. The depreciation tax benefit from the retooling is reflected in the net cash flows in the table.
Use Table II to answer the questions.
Compute the project's net present value. Round your answer to the nearest dollar.
NPV: $
Should the project be adopted?
The project be adopted.
What is the meaning of the computed net present value figure? Round your answer to the nearest dollar.
The value of the firm, and therefore the shareholders’ wealth, is by $ as a result of undertaking…
A firm wishes to bid on a contract that is expected to yield the
following after-tax net cash flows at the end of each year:
Year
Net Cash Aow
1
$5,000
2
8,000
3
9,000
4
8,000
8,000
5,000
7
3,000
8
$-1,500
To secure the contract, the firm must spend $30,000 to retool its
plant. This retooling will have no salvage value at the end of the
8 years. Comparable investment alternatives are available to the
firm that earn 12 percent compounded annually. The
depreciation tax benefit from the retooling is reflected in the
net cash flows in the table.
ACDC Company is considering the installation of a new machine that costs $150,000. The machine is expected to lead to net income of $44,000 per year for the next 5 years. Using straight-line depreciation, $0 salvage value, and an effective income tax rate of 28%, determine the after-tax rate of return for this investment. If the company’s after-tax MARR rate is 12%, would this be a good investment or not?
Chapter 10 Solutions
EBK CONTEMPORARY FINANCIAL MANAGEMENT
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