Question

In: Economics

A project firm is considering for implementation has these estimated cost and reveneus: an investment cost...

A project firm is considering for implementation has these estimated cost and reveneus: an investment cost of $50,008, mantainance cost starts at $5,000 at the end of year(FOY) one and increase by $1,000 for the next four years, and then remains constant for the following five years: savings of $24,105 per year(EOY 1-10) and finally a resale value of $27,215 at EOY 10. If the project has a 10 year life and the firm's MARR is 10% per year, What is the present worth of the project?

Solutions

Expert Solution

Solution:-   

Net benefit table:

Years

Saving(X)

Maintenance cost(Y)

Net Benefit (X-Y)

1

24105

5000

19105

2

24105

6000

18105

3

24105

7000

17105

4

24105

8000

16105

5

24105

9000

15105

6

24105

9000

15105

7

24105

9000

15105

8

24105

9000

15105

9

24105

9000

15105

10

24105

9000

15105

Initial Investment = -50008

Final Year Cash Flow = 15105 + 27215

                                      = 42,320

Present worth = -50008+19105/(1+.10)^1+18105/(1+.10)^2+17105/(1+.10)^3+16105/(1+.10)^4+15105/(1+.10)^5+15105/(1+.10)^6+15105/(1+.10)^7+15105/(1+.10)^8+15105/(1+.10)^9+15105/(1+.10)^10

= -50008+17368.18+14962.81+12851.24+10999.93+9379.02+8526.38+7751.25+7046.594+6405.9945+5823.63

= -50008+101115.0285

= 51107.03

Hence, Present worth of the project is $51107.03

Rahul Sunny answered 1 year ago
Next > < Previous

Related Solutions

A firm has estimated its cost of capital as 5% and is considering a project with...
A firm has estimated its cost of capital as 5% and is considering a project with an initial investment of -$265,000. The subsequent cash flows are $65,000; $77,000; $83,000; $91,000; and $96,000. In the final year (year #6), the firm must pay $50,000 to clean up the site. Calculate the project’s MIRR using the three methods discussed in class. Please provide timelines, a description of all of your math, and calculator inputs.
A firm has an investment project that will cost the firm $30 million but will generate...
A firm has an investment project that will cost the firm $30 million but will generate $2 million of NPV. Also there is a 5% chance that the firm will lose a lawsuit to employees, and be forced to pay damage of $30 million. Suppose that a liability insurance policy with a $30 million limit has a premium equal to $1.5 million. a. Compute expected claim cost b. Compute the amount of loading on the policy c. Compute the expected...
A firm has an investment project that will cost the firm $30 million but will generate...
A firm has an investment project that will cost the firm $30 million but will generate $2 million of NPV. Also there is a 5% chance that the firm will lose a lawsuit to employees, and be forced to pay damage of $30 million. Suppose that a liability insurance policy with a $30 million limit has a premium equal to $1.5 million. Compute expected claim cost Compute the amount of loading on the policy Compute the expected cost of not...
Husky Corporation is considering an investment project in Canada. The project has an initial cost of...
Husky Corporation is considering an investment project in Canada. The project has an initial cost of CAD602,000 and is expected to produce cash inflows of CAD220,000 a year for four years. The project will be worthless after four years. The risk-free rate in the United States is 2 percent and the risk-free rate in Canada is 2.4 percent. The current spot rate is CAD1 = $.742. Husky's required return on dollar investments of this type is 12 percent. What is...
Brandt Enterprises is considering a new project that has an estimated cost of $900,000 and cash...
Brandt Enterprises is considering a new project that has an estimated cost of $900,000 and cash inflows of $286,000 each year in next 5 years. The project’s WACC is 8%. After estimating the cash flows of the project, the CFO conducted a scenario analysis and found the CV (coefficient of variation) of the project’s NPV is 3.8 Given that the CV of an average project of the company is in the range of 1.0 to 2.0, how will you interpret...
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...
2 Sharon Company is considering an investment project that has an initial cost of $23,000 and...
2 Sharon Company is considering an investment project that has an initial cost of $23,000 and an expected life of 3 years. Annual net cash flows from the project begin 1 year after the initial investment is made and have the following probability distribution: Probability Net Cash Flows 0.25 $2000 0.50 16000 0.25 10000 Expected CFs = $11000 Sharon evaluates riskier project with CV ≥0.50 at 14% and less risky project with CV <0.50 at 10% rate. a. Calculate the...
A firm is considering the following investment project. Theproject has a 5-year useful life with...
A firm is considering the following investment project. The project has a 5-year useful life with a $125000 salvage value as shown. Straight-line depreciation will be used. Assume the income tax rate of 34%. What is the after-tax rate of return on this capital expenditure?  
(a) The manufacturing firm Rebo is considering a new capital investment project. The project will last...
(a) The manufacturing firm Rebo is considering a new capital investment project. The project will last for five years. The anticipated sales revenue from the project is $3 million in year 1 and $4.2 million in each of years 2 – 5. The cost of materials and labour is 50% of sales revenue and other expenses are $1 million in each year. The project will require working capital investment equal to 20% of the expected sales revenue for each year....
The manufacturing firm Rebo is considering a new capital investment project. The project will last for...
The manufacturing firm Rebo is considering a new capital investment project. The project will last for five years. The anticipated sales revenue from the project is $3 million in year 1 and $4.2 million in each of years 2 – 5. The cost of materials and labour is 50% of sales revenue and other expenses are $1 million in each year. The project will require working capital investment equal to 20% of the expected sales revenue for each year. This...
ADVERTISEMENT
Subjects
ADVERTISEMENT
Latest Questions
ADVERTISEMENT