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PRIN.OF CORPORATE FINANCE
- Talbot Industries is considering launching a new product. The new manufacturing equipment will cost $17 million, and production and sales will require an initial $5 million investment in net operating working capital. The company’s tax rate is 25%. What is the initial investment outlay? The company spent and expensed $150,000 on research related to the new product last year. What is the initial investment outlay? Rather than build a new manufacturing facility, the company plans to install the equipment in a building it owns but is not now using. The building could be sold for $1.5 million after taxes and real estate commissions. What is the initial investment outlay?arrow_forwardModern Artifacts can produce keepsakes that will be sold for $76 each. Non-depreciated fixed costs are $940 per year and variable costs are $48 per unit. a. If the project requires an initial investment of $2,940 and is expected to last for 8 years and the firm pays no taxes, what are the accounting and NPV break-even levels of sales? The initial investment will be depreciated straight-line over 8 years to a final value of zero, and the discount rate is 14%. (Round your answers to the nearest whole dollar.) NPV break-even sales level is ?arrow_forwardCalculate the net present value (NPV) before tax of investment A: a factory. Base your calculation on the following information: The investment cost is paid in full in quarter 0, and the cost of the factory is 100000. The factory has a lifetime of 20 quarters (5 years) and the value of the factory at the end of quarter 20 is 0 Only Basic jetpacks should be manufactured at the factory throughout its lifetime. There is no investment in research to streamline production or material consumption. Suppose the quarterly demand in the market is constant and given at P = 228 - 0.007 * Q, where P is price and Q is the number of jetpacks in demand. There are 5 competitors in the market (including you), and all sell the same number of jetpacks each quarter at the price of 193 each. You produce as much as you sell. The costs associated with the quarterly production at the factory are given at K = 158 * Q + 20000, where 158 * Q is direct labor cost and materials, and 20000 is quarterly maintenance…arrow_forward
- A chemical company is considering buying a magic fan for its plant. Th e magic fan is expected to work forever and help cool the machines in the plant and, hence, reduce their maintenance costs by $6,000 per year. Th e cost of the fan is $50,000. Th e appropriate discount rate is 10 percent, and the marginal tax rate is 35 percent. Should the company buy the magic fanarrow_forwardYour 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.arrow_forwardModern Artifacts can produce keepsakes that will be sold for $70 each. Non-depreciated fixed costs are $1,050 per year and variable costs are $58 per unit. a. If the project requires an initial investment of $2,940 and is expected to last for 8 years and the firm pays no taxes, what are the accounting and NPV break-even levels of sales? The initial investment will be depreciated straight-line over 8 years to a final value of zero, and the discount rate is 9%. (Round your answers to the nearest whole dollar.) Accounting break-even sales level NPV break-even sales level $ b. How do your answers change if the firm's tax rate is 40%? (Round your answers to the nearest whole dollar.) Accounting break-even sales level NPV break-even sales level $arrow_forward
- Wilson Partners manufactures thermocouples for remote temperature monitoring of electronics applications. The current system has a fixed cost of $400,000 per year and a variable cost of $10 per unit. Wilson sells the units for $14 each. A newly proposed system will add on-board features that allow the revenue to increase to $16 per unit, but the fixed cost will now be $600,000 per year. The variable cost of the new system will be based on a $48 per hour rate with 0.2 hour dedicated to produce each unit Plot the two profit relations and estimate graphically the breakeven quantity between the current and proposed systems. Comment on your estimate.arrow_forwardQuorum Corp. wants to replace a 5-year-old machine with a new machine that is more efficient. The old machine cost $20,000 when new and has a current book value of $8,000. Quorum can sell the old machine for $5,000. The company has a marginal tax rate of 40%. What will be the cash flow impact from the sale of the old machine on the initial outlay for a new machine? a) $3,800 b) $5,000 c) $6,200 d) $8,000arrow_forwardWilson Partners manufactures thermocouples for remote temperature monitoring of electronics applications. The current system has a fixed cost of $400,000 per year and a variable cost of $10 per unit. Wilson sells the units for $14 each. A newly proposed system will add on-board features that allow the revenue to increase to $16 per unit, but the fixed cost will now be $600,000 per year. The variable cost of the new system will be based on a $48 per hour rate with 0.2 hour dedicated to produce each unit. Determine the annual breakeven quantity for the (a) current system, and (b) proposed system.arrow_forward
- A large food-processing corporation is considering using laser technology to speed up and eliminate waste in the potato-peeling process. To implement the system, the company anticipates needing $3.5 million to purchase the industrial-strength lasers. The system will save $1,550,000 per year in labor and materials. However, it will require an additional operating and maintenance cost of $350,000. Annual income taxes will also increase by $150,000. The system is expected to have a 10-year service life and will have a salvage value of about $200,000. If the company's MARR is 18%, use the NPW method to justify the project. Click the icon to view the interest factors for discrete compounding when MARR = 18% per year. The NPW of the project is $ thousand. (Round to the nearest whole number.) X More Info Single Payment Compound Amount Equal Payment Series Sinking Fund Factor Compound Amount Factor (F/A, i, N) Present Worth Factor Factor (F/P, i, N) (A/F, i, N) (P/A, i, N) 1.1800 1.0000 1.0000…arrow_forwardA large food-processing corporation is considering using laser technology to speed up and eliminate waste in the potato-peeling process. To implement the system, the company anticipates needing $3.5 million to purchase the industrial-strength lasers. The system will save $1,550,000 per year in labor and materials. However, it will require an additional operating and maintenance cost of $350,000. Annual income taxes will also increase by $150,000. The system is expected to have a 10-year service life and will have a salvage value of about $200,000. If the company's MARR is 18%, use the NPW method to justify the project. Equal Payment Series Sinking Present Compound Amount Factor Fund Single Payment Compound Present Amount Worth Factor (F/P, i, N) 1.1800 Worth Capital Recovery Factor Factor Factor Factor N (P/F, i, N) (F/A, i, N) (A/F, i, N) (P/A, i, N) (A/P, i, N) 1 0.8475 1.0000 1.0000 0.8475 1.1800 2 1.3924 0.7182 2.1800 0.4587 1.5656 0.6387 3 1.6430 0.6086 3.5724 0.2799 2.1743 0.4599…arrow_forward1. A chemical plant is considering purchasing a computerized control system. The initial cost is $200,000, and the system will produce net savings of $100,000 per year. If purchased, the system will be depreciated under MACRS as a five-year recovery property. The system will be used for four years, at the end of which time the firm expects to sell it for $30,000. The firm's marginal tax rate on this investment is 28%. Any capital gains will be taxed at the same income tax rate. The firm is considering purchasing the computer control system either through its retained earnings or through borrowing from a local bank. Two commercial banks are willing to lend the $200,000 at an interest rate of 10%, but each requires different repayment plans (See Table below). Bank A requires four equal annual payments with interest calculated separately based on the unpaid balance prior to each payment. Bank B offers a traditional installment payment plan with five equal annual payments (interest +…arrow_forward
- Intermediate Financial Management (MindTap Course...FinanceISBN:9781337395083Author:Eugene F. Brigham, Phillip R. DavesPublisher:Cengage LearningEBK CONTEMPORARY FINANCIAL MANAGEMENTFinanceISBN:9781337514835Author:MOYERPublisher:CENGAGE LEARNING - CONSIGNMENT