The Glenn Corporation is considering a four-year project with the following data; What is the project...

The Glenn Corporation is considering a four-year project with the following data; What is the project NPV using wacc of 5.4%?

Additional investment in fixed assets but no additional working capital $100,000

Straight-line depreciation rate 25% but zero salvage value after four years

Annual sales revenues (constant for every year) $75,000

Operating costs (excl. depreciation) (also constant) $25,000

Tax rate 21.0%

Solutions

Expert Solution

Depreciation = 100000 * 25% = 25000

Annual cash flows = (Revenues - Costs) * (1 - Tax rate) + Depreciation * Tax rate

= (75000 - 25000) * (1 - 0.21) + 25000 * 0.21

= 44750

Present value of cash flows = 44750 * ((1- (1+5.40%)^-4)/5.40%

= 44750*3.513249

= 157217.90

NPV = Present value of cash flows - Initial investment

= 157217.90 - 100000

= 57217.90

jeff jeffy answered 1 year ago

Next > < Previous

Related Solutions

The Brookfield Corporation is considering a four-year project with the following data; What is the project...

The Brookfield Corporation is considering a four-year project with the following data; What is the project NPV using wacc of 11.3%? Additional investment in fixed assets but no additional working capital $100,000 Straight-line depreciation rate 25% but zero salvage value after four years Annual sales revenues (constant for every year) $75,000 Operating costs (excl. depreciation) (also constant) $25,000 Tax rate 21.0% Trumbull Inc. has $4.8 million EBIT, $1.2 million depreciation, a tax rate of .4, a capital expenditure of $0.7 million,...

old Corporation is considering a project. The data for the 3 year project are given below....

old Corporation is considering a project. The data for the 3 year project are given below. Should the manager of Gold Corporation accept this project? Use the NPV criteria to make your decision. Sales revenue, each year: $50,000 Variable costs, each year: $12,000 Fixed costs, each year: $0 Sunk costs: $30,000 Initial outlay: $45,000 Depreciation, each year: $15,000 Tax rate: 20% WACC: 12% The project should not be accepted because it has an NPV of -$15,179 The project should be...

Consider the following project of Hand Clapper, Inc. The company is considering a four-year project to...

Consider the following project of Hand Clapper, Inc. The company is considering a four-year project to manufacture clap-command garage door openers. This project requires an initial investment of $12.8 million that will be depreciated straight-line to zero over the project’s life. An initial investment in net working capital of $560,000 is required to support spare parts inventory; this cost is fully recoverable whenever the project ends. The company believes it can generate $10.3 million in pretax revenues with $3.8 million...

Adamson Corporation is considering four average-risk projects with the following costs and rates of return: Project...

Adamson Corporation is considering four average-risk projects with the following costs and rates of return: Project Cost Expected Rate of Return 1 $2,000 16.00% 2 3,000 15.00 3 5,000 13.75 4 2,000 12.50 The company estimates that it can issue debt at a rate of rd = 10%, and its tax rate is 25%. It can issue preferred stock that pays a constant dividend of $5.00 per year at $59.00 per share. Also, its common stock currently sells for $46.00...

Adamson Corporation is considering four average-risk projects with the following costs and rates of return: Project...

Adamson Corporation is considering four average-risk projects with the following costs and rates of return: Project Cost Expected Rate of Return 1 $2,000 16.00% 2 3,000 15.00 3 5,000 13.75 4 2,000 12.50 The company estimates that it can issue debt at a rate of rd = 10%, and its tax rate is 40%. It can issue preferred stock that pays a constant dividend of $5 per year at $45 per share. Also, its common stock currently sells for $34...

Glenn Corporation had the following list of account balances for the year ended December 31, 2017....

Glenn Corporation had the following list of account balances for the year ended December 31, 2017. Net Sales $1,350,000 Cash $400,000 Accounts Receivable 120,000 Operating Expenses 380,000 Equipment 300,000 Common Stock 250,000 Accounts Payable 100,000 Interest Income 20,000 Accumulated Depreciation 30,000 Cost of Goods Sold 750,000 Inventories 30,000 Prepaid Rent 10,000 Income Taxes Payable 40,000 Income Taxes Expense 71,000 Notes Payable Dividends Interest Expense 200,000 10,000 4,000 Retained Earnings, January 1, 2017 85,000 Required: Calculate net income for...

Dr. Chan is considering a four year project. The project requires an initial investment of $10,000,000...

Dr. Chan is considering a four year project. The project requires an initial investment of $10,000,000 to buy new equipment. The equipment will be depreciated straight line to zero over the project’s life. The company believes it can generate $5,000,000 in pretax revenues in year 1. Revenues will increase at 20% per year. Total pretax operating cost would be 40% of the pretax revenues. Net working capital will be 20% of the pretax revenue for the year. Net working capital...

Domino Corporation is considering a 3-year project with an initial cost of $470,000. The project will...

Domino Corporation is considering a 3-year project with an initial cost of $470,000. The project will not directly produce any sales but will reduce operating costs by $143,000 a year. The equipment is classified as MACRS 7-year property. The MACRS table values are .1429, .2449, .1749, .1249, .0893, .0892, .0893, and .0446 for Years 1 to 8, respectively. At the end of the project, the equipment will be sold for an estimated $223,000. The tax rate is 25 percent and...

You are considering a project that has the following cash flow and WACC data. What is...

You are considering a project that has the following cash flow and WACC data. What is the project’s NPV? WACC: 9.00% Year: 0 1 2 3 4 5 Cash flows: –$1,000 $300 $300 $300 $300 $300 Select one: a. 150.62 b. 176.4 c. 166.90 d. 143.90

Redesign Inc. is considering a project that has the following cash flow data. (a) What is...

Redesign Inc. is considering a project that has the following cash flow data. (a) What is the project's payback period? (b) What is the project's discounted payback period? Assume the cost of capital is 12%. Year 0 1 2 3 Cash flows -$500 $200 $200 $200

Subjects