Lamar Advertising is considering investing in a project that requires an after-tax initial investment of $128...

Lamar Advertising is considering investing in a project that requires an after-tax initial investment of $128 million and is expected to produce after-tax cash inflows of $29 million in advertising revenue for each of the next five years. The firm's cost of capital is 11%. Based on this information, the NPV of the project is _________ million and the firm should _________ the project

		$12.2; accept
		-$12.2; reject
		$20.8; accept
		-$20.8; reject

Solutions

Expert Solution

Solution :

The NPV of the project is - $ 20.8 Million.

Since the NPV is negative, the firm should reject the project.

Thus the solution is Option 4 i.e., - $ 20.8 ; reject

Please find the attached screenshot of the excel sheet containing the detailed calculation for the solution.

jeff jeffy answered 6 months ago

Next > < Previous

Related Solutions

You are investing in a project that requires an initial investment of $500,000. The project will...

You are investing in a project that requires an initial investment of $500,000. The project will last for 10 years with the following additional cash flows (CF) at the end of each year: If the discount rate is 10%, calculate the payback periods in Excel for both the methods below; Years 1 2 3 4 5 6 7 8 9 10 CF -500,000 80,000 100,000 100,000 120,000 140,000 150,000 150,000 150,000 150,000 a) Payback Method [10] b) Discounted Payback Method...

A project requires an initial investment of $300,000 and expects to produce an after-tax operating cash...

A project requires an initial investment of $300,000 and expects to produce an after-tax operating cash flow of $150,000 per year for three years. The asset value will be depreciated using straight-line depreciation over three years.At the end of the project, the asset could be sold for a price of $100,000. Assume a 21% tax rate and 15% cost of capital. Calculate the NPV of the project.

4. A project requires an initial investment of $300,000 and expects to produce an after-tax operating...

4. A project requires an initial investment of $300,000 and expects to produce an after-tax operating cash flow of $150,000 per year for three years. The asset value will be depreciated using straight-line depreciation over three years. At the end of the project, the asset could be sold for a price of $100,000. Assume a 21% tax rate and 15% cost of capital. Calculate the NPV of the project.

A firm is considering a project that requires an initial investment of $55,000. The project is...

A firm is considering a project that requires an initial investment of $55,000. The project is expected to generate revenues of $80,000 per year for three years. Operating expenses will be 65% of revenues. The equipment will be depreciated on a straight-line basis to a zero net salvage value. The equipment will have a life of 3 years. The project feasibility study, which was just completed, cost $35,000. The project requires an initial investment in working capital of $5,000. Further...

A company is considering investing in a project that will require an initial investment of $535k,...

A company is considering investing in a project that will require an initial investment of $535k, a dismantling cost after 10 years of $1.6M, and will bring in a positive cash flow at the end of each of the 11 years of $210k. The company has an expected internal return rate of 12%. Show using the Equivalent Rate of Return (ERR) method whether the company should make the investment.

Company XYZ is considering project A. Project A requires an initial investment of $75,000.

Company XYZ is considering project A. Project A requires an initial investment of $75,000. It generates $35,000 each year for the coming 3 years. What is the discounted payback period for this project if the proper discount rate is 18%?

You are considering investing in a project that requires an up-front investment of $1,100,000 and is...

You are considering investing in a project that requires an up-front investment of $1,100,000 and is expected to produce NOI for the four year holding period as follows: Year 1: $81,000, Year 2: $96,000, Year 3: $104,000, Year 4: $113,000. Also, at the end of the fourth year, the property can be sold for $1,250,000. Selling expenses will be 5 percent. You plan to finance 70 percent of the up-front investment with a 15 year loan at 7 percent interest...

A company is considering a project that requires an initial investment of $660,000 and has a...

A company is considering a project that requires an initial investment of $660,000 and has a useful life of 11 years. Expected cash receipts from the project will be $175,000 each year. The salvage value of the assets used in the project will be $75,000. The company’s tax rate is 30%. For tax purposes, the entire initial investment (without any reduction for salvage value) will be depreciated over 11 years. The company uses a discount rate of 21%. Provide the...

A company is considering a project that requires an initial investment of $660,000 and has a...

A company is considering a project that requires an initial investment of $660,000 and has a useful life of 11 years. Expected cash receipts from the project will be $195,000 each year. The salvage value of the assets used in the project will be $70,000. The company’s tax rate is 25%. For tax purposes, the entire initial investment (without any reduction for salvage value) will be depreciated over 11 years. The company uses a discount rate of 20%. Provide the...

A company is considering a project that requires an initial investment of $810,000 and has a...

A company is considering a project that requires an initial investment of $810,000 and has a useful life of 12 years. Expected cash receipts from the project will be $190,000 each year. The salvage value of the assets used in the project will be $75,000. The company’s tax rate is 35%. For tax purposes, the entire initial investment (without any reduction for salvage value) will be depreciated over 12 years. The company uses a discount rate of 17%. Provide the...

Subjects