Question
Raphael Restaurant is considering the purchase of a $9,300 souffl maker. The souffl maker has an economic life of four years and will be fully
Raphael Restaurant is considering the purchase of a $9,300 souffl maker. The souffl maker has an economic life of four years and will be fully depreciated by the straight-line method. The machine will produce 1,650 souffls per year, with each costing $2.10 to make and priced at $4.90. Assume that the discount rate is 14 percent and the tax rate is 34 percent. |
What is the NPV of the project?
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Phillips Industries runs a small manufacturing operation. For this fiscal year, it expects real net cash flows of $201,000. Phillips is an ongoing operation, but it expects competitive pressures to erode its real net cash flows at 4 percent per year in perpetuity. The appropriate real discount rate for Phillips is 11 percent. All net cash flows are received at year-end. What is the present value of the net cash flows from Phillipss operations? (Do not round intermediate calculations and round your answer to 2 decimal places. (e.g., 32.16)) |
Present value | $ |
Sanders Enterprises, Inc., has been considering the purchase of a new manufacturing facility for $284,000. The facility is to be fully depreciated on a straight-line basis over seven years. It is expected to have no resale value after the seven years. Operating revenues from the facility are expected to be $119,000, in nominal terms, at the end of the first year. The revenues are expected to increase at the inflation rate of 4 percent. Production costs at the end of the first year will be $44,000, in nominal terms, and they are expected to increase at 5 percent per year. The real discount rate is 7 percent. The corporate tax rate is 40 percent. Sanders has other ongoing profitable operations. |
Calculate the NPV of the project. (Do not round intermediate calculations and round your final answer to 2 decimal places. (e.g., 32.16)) |
NPV | $ |
Should the company accept the project? | ||||
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You have been hired as a consultant for Pristine Urban-Tech Zither, Inc. (PUTZ), manufacturers of fine zithers. The market for zithers is growing quickly. The company bought some land three years ago for $1.35 million in anticipation of using it as a toxic waste dump site but has recently hired another company to handle all toxic materials. Based on a recent appraisal, the company believes it could sell the land for $1,450,000 on an aftertax basis. In four years, the land could be sold for $1,550,000 after taxes. The company also hired a marketing firm to analyze the zither market, at a cost of $120,000. An excerpt of the marketing report is as follows: |
The zither industry will have a rapid expansion in the next four years. With the brand name recognition that PUTZ brings to bear, we feel that the company will be able to sell 3,300, 4,200, 4,800, and 3,700 units each year for the next four years, respectively. Again, capitalizing on the name recognition of PUTZ, we feel that a premium price of $600 can be charged for each zither. Because zithers appear to be a fad, we feel at the end of the four-year period, sales should be discontinued. |
PUTZ feels that fixed costs for the project will be $400,000 per year, and variable costs are 15 percent of sales. The equipment necessary for production will cost $3.00 million and will be depreciated according to a three-year MACRS schedule. At the end of the project, the equipment can be scrapped for $375,000. Net working capital of $120,000 will be required immediately. PUTZ has a 38 percent tax rate, and the required return on the project is 13 percent. Assume the company has other profitable projects. MACRS schedule. |
What is the NPV of the project? (Do not round intermediate calculations and round your final answer to 2 decimal places. (e.g., 32.16)) |
NPV | $ |
_2014_Q
Dickinson Brothers, Inc., is considering investing in a machine to produce computer keyboards. The price of the machine will be $986,000, and its economic life is five years. The machine will be fully depreciated by the straight-line method. The machine will produce 31,000 keyboards each year. The price of each keyboard will be $30 in the first year and will increase by 4 percent per year. The production cost per keyboard will be $10 in the first year and will increase by 5 percent per year. The project will have an annual fixed cost of $206,000 and require an immediate investment of $36,000 in net working capital. The corporate tax rate for the company is 35 percent. The appropriate discount rate is 12 percent. |
What is the NPV of the investment? (Do not round intermediate calculations and round your answer to 2 decimal places. (e.g., 32.16)) |
NPV | $ |
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C_54533
Suppose we are thinking about replacing an old computer with a new one. The old one cost us $1,320,000; the new one will cost, $1,580,000. The new machine will be depreciated straight-line to zero over its five-year life. It will probably be worth about $320,000 after five years. |
The old computer is being depreciated at a rate of $264,000 per year. It will be completely written off in three years. If we dont replace it now, we will have to replace it in two years. We can sell it now for $440,000; in two years, it will probably be worth $122,000. The new machine will save us $292,000 per year in operating costs. The tax rate is 35 percent, and the discount rate is 10 percent. |
a.1 | Calculate the EAC for the old computer and the new computer. (Negative amounts should be indicated by a minus sign. Do not round intermediate calculations and round your final answers to 2 decimal places. (e.g., 32.16)) |
| EAC |
New computer | $ |
Old computer | $ |
a.2 | What is the NPV of the decision to replace the computer now? (Negative amount should be indicated by a minus sign. Do not round intermediate calculations and round your final answer to 2 decimal places. (e.g., 32.16)) |
NPV | $ |
Raphael Restaurant is considering the purchase of a $9,300 souffl maker. The souffl maker has an economic life of four years and will be fully depreciated by the straight-line method. The machine will produce 1,650 souffls per year, with each costing $2.10 to make and priced at $4.90. Assume that the discount rate is 14 percent and the tax rate is 34 percent. |
What is the NPV of the project?
|
Phillips Industries runs a small manufacturing operation. For this fiscal year, it expects real net cash flows of $201,000. Phillips is an ongoing operation, but it expects competitive pressures to erode its real net cash flows at 4 percent per year in perpetuity. The appropriate real discount rate for Phillips is 11 percent. All net cash flows are received at year-end. What is the present value of the net cash flows from Phillipss operations? (Do not round intermediate calculations and round your answer to 2 decimal places. (e.g., 32.16)) |
Present value | $ |
Sanders Enterprises, Inc., has been considering the purchase of a new manufacturing facility for $284,000. The facility is to be fully depreciated on a straight-line basis over seven years. It is expected to have no resale value after the seven years. Operating revenues from the facility are expected to be $119,000, in nominal terms, at the end of the first year. The revenues are expected to increase at the inflation rate of 4 percent. Production costs at the end of the first year will be $44,000, in nominal terms, and they are expected to increase at 5 percent per year. The real discount rate is 7 percent. The corporate tax rate is 40 percent. Sanders has other ongoing profitable operations. |
Calculate the NPV of the project. (Do not round intermediate calculations and round your final answer to 2 decimal places. (e.g., 32.16)) |
NPV | $ |
Should the company accept the project? | ||||
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You have been hired as a consultant for Pristine Urban-Tech Zither, Inc. (PUTZ), manufacturers of fine zithers. The market for zithers is growing quickly. The company bought some land three years ago for $1.35 million in anticipation of using it as a toxic waste dump site but has recently hired another company to handle all toxic materials. Based on a recent appraisal, the company believes it could sell the land for $1,450,000 on an aftertax basis. In four years, the land could be sold for $1,550,000 after taxes. The company also hired a marketing firm to analyze the zither market, at a cost of $120,000. An excerpt of the marketing report is as follows: |
The zither industry will have a rapid expansion in the next four years. With the brand name recognition that PUTZ brings to bear, we feel that the company will be able to sell 3,300, 4,200, 4,800, and 3,700 units each year for the next four years, respectively. Again, capitalizing on the name recognition of PUTZ, we feel that a premium price of $600 can be charged for each zither. Because zithers appear to be a fad, we feel at the end of the four-year period, sales should be discontinued. |
PUTZ feels that fixed costs for the project will be $400,000 per year, and variable costs are 15 percent of sales. The equipment necessary for production will cost $3.00 million and will be depreciated according to a three-year MACRS schedule. At the end of the project, the equipment can be scrapped for $375,000. Net working capital of $120,000 will be required immediately. PUTZ has a 38 percent tax rate, and the required return on the project is 13 percent. Assume the company has other profitable projects. MACRS schedule. |
What is the NPV of the project? (Do not round intermediate calculations and round your final answer to 2 decimal places. (e.g., 32.16)) |
NPV | $ |
_2014_Q
Dickinson Brothers, Inc., is considering investing in a machine to produce computer keyboards. The price of the machine will be $986,000, and its economic life is five years. The machine will be fully depreciated by the straight-line method. The machine will produce 31,000 keyboards each year. The price of each keyboard will be $30 in the first year and will increase by 4 percent per year. The production cost per keyboard will be $10 in the first year and will increase by 5 percent per year. The project will have an annual fixed cost of $206,000 and require an immediate investment of $36,000 in net working capital. The corporate tax rate for the company is 35 percent. The appropriate discount rate is 12 percent. |
What is the NPV of the investment? (Do not round intermediate calculations and round your answer to 2 decimal places. (e.g., 32.16)) |
NPV | $ |
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C_54533
Suppose we are thinking about replacing an old computer with a new one. The old one cost us $1,320,000; the new one will cost, $1,580,000. The new machine will be depreciated straight-line to zero over its five-year life. It will probably be worth about $320,000 after five years. |
The old computer is being depreciated at a rate of $264,000 per year. It will be completely written off in three years. If we dont replace it now, we will have to replace it in two years. We can sell it now for $440,000; in two years, it will probably be worth $122,000. The new machine will save us $292,000 per year in operating costs. The tax rate is 35 percent, and the discount rate is 10 percent. |
a.1 | Calculate the EAC for the old computer and the new computer. (Negative amounts should be indicated by a minus sign. Do not round intermediate calculations and round your final answers to 2 decimal places. (e.g., 32.16)) |
| EAC |
New computer | $ |
Old computer | $ |
a.2 | What is the NPV of the decision to replace the computer now? (Negative amount should be indicated by a minus sign. Do not round intermediate calculations and round your final answer to 2 decimal places. (e.g., 32.16)) |
NPV | $ |
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