Question
Capital Budgeting (3 Questions @ 15 points each 45 points total >>>>> SHOW YOUR WORK TO RECEIVE CREDIT! Investment Corp. (IC) is considering foreign direct
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Capital Budgeting (3 Questions @ 15 points each 45 points total
Capital Budgeting (3 Questions @ 15 points each 45 points total
>>>>> SHOW YOUR WORK TO RECEIVE CREDIT!
Investment Corp. (IC) is considering foreign direct investment in a facility overseas. The investment will require $1,000,000 up front, and the require rate of return is 6%. The facility should produce for five years. The following data concerns the relevant cash flows:
| 1) | Revenues are projected to be $450,000 for the first two years, and $200,000 for the last three years. | |||||
| 2) | Fixed costs of operating the facility will be $10,000 per year paid at the beginning of the year. | |||||
| 3) | Variable costs are expected to be 30% of gross revenues. | |||||
| 4) | Maintenance costs are expected to be $1,000 for the first year, $3,000 for years 2, 3, and 4, and | |||||
| $7,000 for year 5. | ||||||
| 5) | IC uses straight-line depreciation, and the facility is estimated to have a salvage value of $200,000. | |||||
| 6) | The flat tax rate is 25%. | |||||
| Required: Use the Present Value table (or a financial calculator) to calculate the following: | ||||
| 18) | Net Present Value (NPV) | |||
| 19) | Payback Period | |||
| 20) | Book Rate of (ROI) | |||
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Money Banking and Financial Markets
Authors: Stephen Cecchetti, Kermit Schoenholtz
5th edition
77536320, 77536329, 1259746747, 978-1259746741
