FITCO is considering the purchase of new equipment. The equipment costs $337000, and an additional $114000...

FITCO is considering the purchase of new equipment. The equipment costs $337000, and an additional $114000 is needed to install it. The equipment will be depreciated straight-line to zero over a 5-year life. The equipment will generate additional annual revenues of $260000, and it will have annual cash operating expenses of $85000. The equipment will be sold for $85000 after 5 years. An inventory investment of $71000 is required during the life of the investment. FITCO is in the 40 percent tax bracket, and its cost of capital is 10 percent. What is the project NPV?

$55788.

$71818.

$88557.

$40428.

Expert Solution

	Year	0	1	2	3	4	5

A	Initial investment	-451000
B	Working capital	-71000					71000


i	Revenue		260000	260000	260000	260000	260000
ii	Cost		85000	85000	85000	85000	85000
iii	depreciation		90200	90200	90200	90200	90200
iv=i-ii-iii	Profit before tax		84800	84800	84800	84800	84800
v=iv*40%	Tax @ 40%		33920	33920	33920	33920	33920
vi=iv-v	Net income		50880	50880	50880	50880	50880
vii=vi+iii	Operating cash flow	141080	141080	141080	141080	141080

viii	Post tax salvage value					51000
	85000*(1-40%)

ix=A+B+vii+viii	net cash flow	-522000	141080	141080	141080	141080	263080
x	PVIF @ 10%	1.0000	0.9091	0.8264	0.7513	0.6830	0.6209
xi=ix*x	Present value	(522,000)	128,255	116,595	105,995	96,360	163,352	88,557

	NPV =	88,557

	Ans =	$ 88,557

jeff jeffy answered 2 years ago

FITCO is considering the purchase of new equipment. The equipment costs $354000, and an additional $104000...

FITCO is considering the purchase of new equipment. The equipment costs $354000, and an additional $104000 is needed to install it. The equipment will be depreciated straight-line to zero over a 5-year life. The equipment will generate additional annual revenues of $266000, and it will have annual cash operating expenses of $82000. The equipment will be sold for $84000 after 5 years. An inventory investment of $71000 is required during the life of the investment. FITCO is in the 40...

BITFIT is considering the purchase of new equipment. The equipment costs $360,000, and an additional $120,000...

BITFIT is considering the purchase of new equipment. The equipment costs $360,000, and an additional $120,000 is needed to install it. The equipment will be depreciated straight-line to zero over a 6-year life. The equipment will generate additional annual revenues of $265,000, and it will have annual cash operating expenses of $80,000. The equipment will be sold for $75,000 after 6 years. An inventory investment of $73,000 is required during the life of the investment and will be recovered by...

FITCO is considering the purchase of new equipment. The equipment costs $355000, and an additional $112000...

FITCO is considering the purchase of new equipment. The equipment costs $355000, and an additional $112000 is needed to install it. The equipment will be depreciated straight-line to zero over a 5-year life. The equipment will generate additional annual revenues of $268000, and it will have annual cash operating expenses of $82000. The equipment will be sold for $85000 after 5 years. An inventory investment of $75000 is required during the life of the investment. FITCO is in the 40...

Green House Tomato Company is considering the purchase of new processing equipment for $1,500,000, with an additional installation cost of $18,000.

Green House Tomato Company is considering the purchase of new processing equipment for $1,500,000, with an additional installation cost of $18,000. The new equipment will result in earnings before interest and taxes of $450,000 per year, and to operate the equipment properly, workers would have to go through an initial training session costing the company $50,000. In addition, because the equipment is extremely efficient, its purchase necessitates an increase in inventory of $90,000. Assume the company uses straight-line depreciation, the...

A company is considering the purchase of some equipment. The equipment costs $1,600,000. It lasts for...

A company is considering the purchase of some equipment. The equipment costs $1,600,000. It lasts for 4 years, and would be depreciated straight line to a zero salvage value. Alternatively, the company could lease the equipment for 4 years. The leasing contract would include maintenance, and the lease payments would be due at the end of each of the four years. The company’s before-tax cost of debt is 10%. The tax rate is 40%. What is the breakeven lease payment...

A company is considering purchasing new equipment. The purchase of the equipment is expected to...

A company is considering purchasing new equipment. The purchase of the equipment is expected to generate after tax savings of $12,600 each year for 8 years. The company can borrow money at 6%. Assume annual compounding. Determine the present value of the future cash inflows. Hint: the $12,600 are your annuity payments

A hospital is considering the purchase of a piece of medical equipment that costs $1,500,000 and...

A hospital is considering the purchase of a piece of medical equipment that costs $1,500,000 and has a useful life of five years and no salvage value at the end of its useful life. The equipment generates revenues of $650,000 per year and operating expenses of $300,000. Calculate NPV, payback, BCR, and IRR, should the equipment be purchased if the discount rate is 6% or 10%? Revenue Expense Year 0 - $1,500,000 (investment) ...

Mills Mining is considering the purchase of additional equipment. The proposed project has the following features:...

Mills Mining is considering the purchase of additional equipment. The proposed project has the following features: The equipment has an invoice price of $390,000 and will cost $40,000 to modify for company use. Shipping will cost $10,000. The company spent $10,000 last year analyzing 5 competing brands of equipment before deciding that this brand was the best for their purposes. The equipment will be depreciated as a 3-Year MACRS asset with the following rates: Year 1 – 33%, Year 2...

Pausini Corporation is considering a new equipment for their factory in Milan. The equipment costs ...

Pausini Corporation is considering a new equipment for their factory in Milan. The equipment costs $500,000 today and it will be depreciated on a straight-line basis over five years. In addition, the company’s inventory will increase by $81,000 and accounts payable will rise by $29,000. All other operating working capital components will stay the same. The change in net working capital will be recovered at the end of third year at which time the company sells...

Nona Sports is considering the purchase of new production equipment. The equipment will cost $135,000. It...

Nona Sports is considering the purchase of new production equipment. The equipment will cost $135,000. It has an expected useful of life of 5 years, but will require refurbishing at the end of 3 years. The refurbishment will cost $5,000. The estimated salvage value at the end of the useful life is $10,000. The increased annual net income from the equipment is projected to be $40,000. Using a hurdle rate of 12%, calculate the NPV for the equipment. *If you...

Question