Question
In: Physics
Your company is considering the purchase of new equipment. Consultants have been hired to examine the...
Your company is considering the purchase of new equipment. Consultants have been hired to examine the feasibility of the project. The preliminary, investigative stage will last one year and cost $500,000. There is a 70% chance that this phase will be successful. If the initial phase is not successful, the company will cease activity related to this project.
If the initial phase is successful, the company will spend $1,000,000 for equipment. The equipment is expected to have a five-year life and will be depreciated straight line to zero. The new equipment will generate sales of $700,000/year and cost $150,000/year to operate. Assume a cost of capital of 15% and a tax rate of 30%.
What is NPV at time 1?
What is the expected payoff at time 1?
What is NPV at Time 0?
Now suppose there is an option to abandon at Time 1. Analysis and data generated during the investigative stage can be sold for $100,000. What is the value of this option to abandon?
(Yes, time 1 is the correct question. This is not a typo).
Solutions
genius_generous answered 2 years agoRelated Solutions
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
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purchase of $685,000 in new equipment. The company expects to sell
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cost, but some assets will remain in the CCA class. Annual sales
from this project are estimated at $244,000. Initial net working
capital equal to 30.50% of sales will be required. All of the net
working capital will be recovered at the end of the project....
Your company is considering a project which will require the purchase of $715,000 in new equipment....
Your company is considering a project which will require the
purchase of $715,000 in new equipment. The company expects to sell
the equipment at the end of the project for 25% of its original
cost, but some assets will remain in the CCA class. Annual sales
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Your company is considering a project which will require the
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from this project are estimated at $260,000. Initial net working
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Your company is considering a project which will require the purchase of $805,000 in new equipment....
Your company is considering a project which will require the
purchase of $805,000 in new equipment. The company expects to sell
the equipment at the end of the project for 25% of its original
cost, but some assets will remain in the CCA class. Annual sales
from this project are estimated at $292,000. Initial net working
capital equal to 36.50% of sales will be required. All of the net
working capital will be recovered at the end of the project....
Your company is considering a project which will require the purchase of $775,000 in new equipment....
Your company is considering a project which will require the
purchase of $775,000 in new equipment. The company expects to sell
the equipment at the end of the project for 25% of its original
cost, but some assets will remain in the CCA class. Annual sales
from this project are estimated at $280,000. Initial net working
capital equal to 35.00% of sales will be required. All of the net
working capital will be recovered at the end of the project....
Your company is considering a project which will require the purchase of $785,000 in new equipment....
Your company is considering a project which will require the
purchase of $785,000 in new equipment. The company expects to sell
the equipment at the end of the project for 25% of its original
cost, but some assets will remain in the CCA class. Annual sales
from this project are estimated at $284,000. Initial net working
capital equal to 35.50% of sales will be required. All of the net
working capital will be recovered at the end of the project....
Your company is considering a project which will require the purchase of $825,000 in new equipment....
Your company is considering a project which will require the
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the equipment at the end of the project for 25% of its original
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Your company is considering a project which will require the purchase of $775,000 in new equipment....
Your company is considering a project which will require the
purchase of $775,000 in new equipment. The company expects to sell
the equipment at the end of the project for 25% of its original
cost, but some assets will remain in the CCA class. Annual sales
from this project are estimated at $280,000. Initial net working
capital equal to 35.00% of sales will be required. All of the net
working capital will be recovered at the end of the project....
You and your team are financial consultants who have been hired by a large, publicly traded...
You and your team are financial consultants who have been hired
by a large, publicly traded electronics firm, Brilliant Electronics
(BI), a leader in its industry. The company is looking into
manufacturing its new product, a machine using sophisticated state
of the art technology developed by BI’s R&D team, overseas.
This overseas project will last five years. They’ve asked you to
evaluate this project and to make a recommendation about whether or
not the company should pursue it. BI’s management...
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