A project requires an initial investment of $150,000, to be depreciated straight-line over 3 years to an expected salvage value of $0. In addition, working capital will increase during the life of the project and amount to 20% of next year's revenues, with the investment in working capital to be made at the beginning of each year. The project will generate $150,000 additional annual revenues and $85,000 additional annual expenses. The tax rate is 25%. Cost of capital amount to 7,5%. Please calculate the Net Present Value of the project and show your calculations. Would you recommend the investment? Please explain your advice.

A project requires an initial investment of $150,000, to be depreciated straight-line over 3 years to an expected salvage value of $0. In addition, working capital will increase during the life of the project and amount to 20% of next year's revenues, with the investment in working capital to be made at the beginning of each year. The project will generate $150,000 additional annual revenues and $85,000 additional annual expenses. The tax rate is 25%. Cost of capital amount to 7,5%. Please calculate the Net Present Value of the project and show your calculations. Would you recommend the investment? Please explain your advice.

Cornerstones of Cost Management (Cornerstones Series)

4th Edition

ISBN:9781305970663

Author:Don R. Hansen, Maryanne M. Mowen

Publisher:Don R. Hansen, Maryanne M. Mowen

Chapter19: Capital Investment

Section: Chapter Questions

Problem 17E: Postman Company is considering two independent projects. One project involves a new product line,...

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Postman Company is considering two independent projects. One project involves a new product line, and the other involves the acquisition of forklifts for the Materials Handling Department. The projected annual operating revenues and expenses are as follows: Required: Compute the after-tax cash flows of each project. The tax rate is 40 percent and includes federal and state assessments.
A project requires an initial investment of $150,000, to be depreciated straight-line over 3 years to an expected salvage value of $0. In addition, working capital will increase during the life of the project and amount to 20% of next year’s revenues, with the investment in working capital to be made at the beginning of each year. The project will generate $150,000 additional annual revenues and $85,000 additional annual expenses. The tax rate is 25%. Cost of capital amount to 7,5%. Please calculate the Net Present Value of the project and show your calculations. Would you recommend the investment? Please explain your advice.
A new investment project requires a purchase of a new equipment with a cost of $575,000 , which will be depreciated straight-line to zero over its 4-year life. The investment lasts for four years, and will bring in an annual operating cash flow of $215,000. At the end of the four years, the equipment will be sold and result in an after tax salvage value of $25,000 . The investment will require an investment of working capital of $15,000 , initially and will be fully recovered at the end of year four. Assume the discount rate is 15 percent and the tax rate is 28 percent. What is last year's cash flow from the project?
Consider a capital expenditure project that has forecasted revenues equal to $32,000 per year; cash expenses are estimated to be $29,000 per year. The cost of the project equipment is $23,000, and the equipment’s estimated salvage value at the end of the project is $9,000. The equipment’s $23,000 cost will be depreciated on a straight-line basis to $0 over a 10-year estimated economic life. Assume that the project requires an initial $7,000 working capital investment. The company’s marginal tax rate is 30%. Calculate the project’s net present value using a 12% discount rate.
A 5-yr project has an initial requirement of $100,415 for new equipment and $8,944 for net working capital. The fixed assets will be depreciated to a zero book value over 5 years and have an estimated salvage value of $23,294. All of the net working capital will be recouped at the end of the project. The annual operating cash flow is $69,509. The cost of capital is 8% and the tax rate is 29%. What is the net present value of the project?
Consider a capital expenditure project with an expected 10-year economic life and forecasted revenues equal to $40,000 per year; cash expenses are estimated to be $29,000 per year. The cost of the project equipment is $23,000, and the equipment's estimated salvage value at the end of the project is $9,000. The equipment's $23,000 cost will be depreciated using MACRS depreciation (7-year asset). The project requires a $7,000 working capital investment in year 0 and another $5,000 in year 5. The company's marginal tax rate is 40%. Calculate the expected net cash flow in year 10 of the project.
A project requires an initial investment of $350,000, to be depreciated straight-line over 3 years to a salvage value of $50,000 (you can assume that you'll be able to cash in this amount at end of year 3). Working capital requirements are 10% of next year's sales. The project will generate $400,000 additional revenues in year 1, and these revenues will increase every year by a rate of 10% compared to the revenues the year before. Expenses will amount to 60% of revenues. The tax rate is 35%. Cost of capital amounts to 7%. Please calculate the net present value of the project and show your calculations. Would you recommend the investment? Please explain.
A project requires an initial investment of $322,990 and its expected life is 7 years. Net operating income from the project is expected to be $28,100 each year, including depreciation of $42,270. The salvage value of the assets is expected to be $27,100 at the end of the life of the project. Ignoring income taxes, the payback period is: (Round your answer to 2 decimal places.) Payback period years
Estimate the approximate before-tax rate of return (ROR) for a project that has a first cost of $750,000 and a salvage value of 25% of the first cost after three years. The project’s NOI is $260,000. Assume an effective tax rate of 37%.
A project has an initial requirement of $261,000 for fixed assets and $27,000 for net working capital. The fixed assets will be depreciated to a zero book value over the four-year life of the project and have an estimated salvage value of $78,000. All of the net working capital will be recouped at the end of the project. The annual operating cash flow is $96,200 and the discount rate is 12.75 percent. What is the project's net present value if the tax rate is 30 percent?
A project that is expected to last six years will generate a profit and cash flow contribution before taxes and depreciation of $23,000 per year. It requires the initial purchase of equipment costing $60,000, which will be depreciated straight line over four years. The relevant tax rate is 25%. Calculate the project’s cash flows. Round all figures within your computations to the nearest thousand dollars. please explain how you arrived at your figures
A proposed five-year project will require $627,000 for fixed assets, $196,000 for inventory, and $ 34,000 for accounts receivable. Accounts payable are expected to increase by $156,000. The fixed assets will be depreciated straight-line to a zero book value over five years. At the end of the project, the fixed assets can be sold for $255,000. The net working capital returns to its original level at the end of the project. The operating cash flow per year is $62,000. The tax rate is 35 percent and the discount rate is 12 percent. What is the total cash flow in the final year of the project? Group of answer choices $389,530 $358,430 $365, 788 $330,030 $301,750