Question

In: Economics

Amsterdam is considering spending $10 million to upgrade its dykes, which hold back sea at high...

Amsterdam is considering spending $10 million to upgrade its dykes, which hold back sea at high tide from flooding the city. The upgrades will last for 3 years, and the benefits in each of the three years will be $4 million.

The discount rate is 10%. According to a benefit-cost analysis, what is the Present Discounted Value of the project? State your answer to two decimal places, in terms of millions.

Solutions

Expert Solution

what is the Present Discounted Value of the project

=-10+4*(1-(1+10%)^(-3))/10%

=-0.05 million

Rahul Sunny answered 3 years ago
Next > < Previous

Related Solutions

Sway's Back Store is considering a project which will require the purchase of $1.5 million in...
Sway's Back Store is considering a project which will require the purchase of $1.5 million in new equipment. The equipment will be depreciated straight-line to a book value of $0.5 million over the 5-year life of the project. Annual sales from this project are estimated at $950,000. The variable cost is 40% of the annual sales and there is an annual fixed cost of $100,000. Sway's Back Store will sell the equipment at the end of the project for a...
Sway's Back Store is considering a project which will require the purchase of $1 million in...
Sway's Back Store is considering a project which will require the purchase of $1 million in new equipment. The equipment will be depreciated straight-line to $200,000 over the 5-year life of the project. The first-year sale from this project is estimated at $800,000, then it keeps growing at a 5% rate. The variable cost is always 50% of the annual sales and there is an annual fixed cost of $100,000. Sway's Back Store will sell the equipment at the end...
Patterson Products Inc. is considering an upgrade to its manufacturing equipment. The two upgrade options under...
Patterson Products Inc. is considering an upgrade to its manufacturing equipment. The two upgrade options under consideration are shown below. Option 1 Option 2   Direct material cost per unit $ 50.4   $ 33.6     Direct labour cost per unit $ 42   $ 35     Variable overhead per unit $ 8.4   $ 26.6   Fixed manufacturing costs $ 2,040,000   $ 3,552,000   The selling price of the company’s product is $168 per unit with variable selling costs of 10% of sales. Fixed selling and administrative...
Patterson Products Inc. is considering an upgrade to its manufacturing equipment. The two upgrade options under...
Patterson Products Inc. is considering an upgrade to its manufacturing equipment. The two upgrade options under consideration are shown below. Option 1 Option 2 Direct material cost per unit $ 72.0 $ 48.0 Direct labour cost per unit $ 54 $ 47 Variable overhead per unit $ 18.0 $ 41.0 Fixed manufacturing costs $ 2,100,000 $ 4,500,000 The selling price of the company’s product is $240 per unit with variable selling costs of 10% of sales. Fixed selling and administrative...
Patterson Products Inc. is considering an upgrade to its manufacturing equipment. The two upgrade options under...
Patterson Products Inc. is considering an upgrade to its manufacturing equipment. The two upgrade options under consideration are shown below. Option 1 Option 2   Direct material cost per unit $ 57.6   $ 38.4     Direct labour cost per unit $ 46   $ 39     Variable overhead per unit $ 11.6   $ 31.4   Fixed manufacturing costs $ 2,060,000   $ 3,852,000   The selling price of the company’s product is $192 per unit with variable selling costs of 10% of sales. Fixed selling and administrative...
Sway's Back Store is considering a 7-year project which will require the purchase of $2 million...
Sway's Back Store is considering a 7-year project which will require the purchase of $2 million in new equipment. The equipment will be depreciated using MACRS method. Sway's Back Store will sell the equipment at the end of the project for a salvage value of $300,000. Annual sales from this project are estimated at $1,050,000 in year 1, and it is expected to grow by 3% each year. The variable cost is 40% of the annual sales and there is...
A company needs to borrow $10 million for its working capital needs. Its considering the following...
A company needs to borrow $10 million for its working capital needs. Its considering the following three alternatives: Forgo cash discounts granted with the credit terms of 3/10; net 30 Borrow from the bank at 15% requiring a compensating balances 12% Issue commercial paper with 180 day maturity, at 12%. Cost of placement will $100,000. Which alternative would be the best?
A company needs to borrow $10 million for its working capital needs. Its considering the following...
A company needs to borrow $10 million for its working capital needs. Its considering the following three alternatives: Forgo cash discounts granted with the credit terms of 3/10; net 30 Borrow from the bank at 15% requiring a compensating balances 12% Issue commercial paper with 180 day maturity, at 12%. Cost of placement will $100,000. Which alternative would be the best?
The town of Mount Hope is financing a $4.4 million upgrade to its water system though...
The town of Mount Hope is financing a $4.4 million upgrade to its water system though the province’s Municipal Finance Authority (MFA). The MFA obtained financing via a bond issue with interest at 7.4% compounded semi-annually. At the end of every 6 months, the town is to make equal payments into a sinking fund administered by the MFA so that the necessary funds will be available to repay the $4.4 million bond when it matures in 20 years. The sinking...
The CBA Corporation is considering a change in its capital structure. They currently have $10 million...
The CBA Corporation is considering a change in its capital structure. They currently have $10 million (market value) in debt at an interest rate of 5.6%. Their stock price is $35 per share with 1,000,000 shares outstanding. EBIT is currently $6.15 million and is expected to remain at that level into the foreseeable future. The risk-free rate is currently 3.2% and the market risk premium is 5.8%. CBA has a beta of 1.1. They are in the 40% combined federal...
ADVERTISEMENT
Subjects
ADVERTISEMENT
Latest Questions
ADVERTISEMENT