Question

In: Finance

In analyzing a new potential business MacDonald Publishing’s financial staff is estimating an initial capital expenditure...

In analyzing a new potential business MacDonald Publishing’s financial staff is estimating an initial capital expenditure of $5.5 million. This equipment will be depreciated according to the MACRS 3 year class life and will have a market value of $500,000 after four years. If MacDonald goes ahead with the new business, inventories and accounts payable will increase by $300,000 each. The new business is expected to have an economic life of four years and is expected to generate annual sales of 4.5 million and incur operating costs (excluding depreciation) of 2.2 million annually. If the company's tax rate is 40 percent and the required return is 10 percent, calculate the expected NPV of the new business. Question 10 options: $1,110,954.12 $910,618.13 $719,388.32 $954,044.83

Solutions

Expert Solution

SEE IMAGE

Go through it, Any doubts, please feel free to ask, Give positive feedback, Thank you


Related Solutions

In analyzing a new potential business MacDonald Publishing’s financial staff is estimating an initial capital expenditure...
In analyzing a new potential business MacDonald Publishing’s financial staff is estimating an initial capital expenditure of $6.1 million. This equipment will be depreciated according to the MACRS 3 year class life and will have a market value of $1 million after four years. If MacDonald goes ahead with the new business, inventories and accounts payable will increase by $300,000 each. The new business is expected to have an economic life of four years and is expected to generate annual...
4. Capital Budgeting Suppose you are analyzing a potential project for your small business. It will...
4. Capital Budgeting Suppose you are analyzing a potential project for your small business. It will cost you $75,000 now to purchase all the assets necessary, and you expect the project to yield $25,000 in year one, $35,000 in year 2, and $45,000 in year 3. The cost of capital for this project is 6.0%. a. What are the project's cash flows? CF0= CF1= CF2= . CF3= b. What is the project’s net present value (NPV)? c. What is the...
How is the initial investment in a capital expenditure calculated?
How is the initial investment in a capital expenditure calculated?
Consider a capital expenditure project to purchase and install new equipment with an initial cash outlay...
Consider a capital expenditure project to purchase and install new equipment with an initial cash outlay of $25,000. The project is expected to generate net after-tax cash flows each year of $6800 for ten years, and at the end of the project, a one-time after-tax cash flow of $11,000 is expected. The firm has a weighted average cost of capital of 12 percent and requires a 3-year payback on projects of this type. Determine whether this project should be accepted...
Heart Construction is analyzing its capital expenditure proposals for equipment in the coming year. The capital...
Heart Construction is analyzing its capital expenditure proposals for equipment in the coming year. The capital budget is limited to $15,000,000 for the year. Laura, staff analyst at Heart Construction, is preparing an analysis of the three projects under consideration by Mr. Heart, the company’s owner. Project A Project B Project C Net initial investment $6,600,000 $8,500,000 $9,000,000 Year 1 cash inflows 3,600,000 5,500,000 4,900,000 Year 2 cash inflows 3,600,000 2,000,000 4,900,000 Year 3 cash inflows 3,600,000 1,100,000 200,000 Year...
Motel Corporation is analyzing a capital expenditure that will involve a cash outlay of $134,200. Estimated...
Motel Corporation is analyzing a capital expenditure that will involve a cash outlay of $134,200. Estimated cash flows are expected to be $20,000 annually for 10 years. The internal rate of return; find out NPV, PV Index for this investment @ 5%
Romanos Construction is analyzing its capital expenditure proposals for the purchase of equipment in the coming...
Romanos Construction is analyzing its capital expenditure proposals for the purchase of equipment in the coming year. The capital budget is limited to $8,000,000 for the year. Lyssa Bart​, staff analyst at Romanos​, is preparing an analysis of the three projects under consideration by Chester Romanos​, the​ company's owner. Project A Project B Project B Projected cash outflow Net Intial Investment $                4,000,000.00 $                3,000,000.00 $    4,000,000.00 Projected cash inflow Year 1 $                2,550,000.00 $                    800,000.00 $    2,100,000.00 Year 2...
Clarabelles Construction is analyzing its capital expenditure proposals for the purchase of equipment in the coming...
Clarabelles Construction is analyzing its capital expenditure proposals for the purchase of equipment in the coming year. The capital budget is limited to $ 12 comma 000 comma 000 for the year. Lenora Bentley​, staff analyst at Clarabelles​, is preparing an analysis of the three projects under consideration by Calvin Clarabelles​, the​ company's owner. LOADING... ​(Click the icon to view the data for the three​ projects.) Present Value of $1 table LOADING...    Present Value of Annuity of $1 table LOADING...    ...
RozzisRozzis Construction is analyzing its capital expenditure proposals for the purchase of equipment in the coming...
RozzisRozzis Construction is analyzing its capital expenditure proposals for the purchase of equipment in the coming year. The capital budget is limited to $ 5 comma 000 comma 000$5,000,000 for the year. LindaLinda BensonBenson?, staff analyst at RozzisRozzis?, is preparing an analysis of the three projects under consideration by ChesterChester RozzisRozzis?, the? company's owner. Requirement 1. Because the? company's cash is? limited, RozzisRozzis thinks the payback method should be used to choose between the capital budgeting projects. a. What are...
Hafners Construction is analyzing its capital expenditure proposals for the purchase of equipment in the coming...
Hafners Construction is analyzing its capital expenditure proposals for the purchase of equipment in the coming year. The capital budget is limited to $15,000,000 for the year. Lauren Bobo​,staff analyst at Hafners​, is preparing an analysis of the three projects under consideration by Caden Hafners​, the​ company's owner. Project A Project B Project C Projected cash outflow Net initial investment $6,600,000 $8,500,000 $9,000,000 Projected cash inflows Year 1 $3,600,000 $5,500,000 $4,900,000 Year 2 3,600,000 2,000,000 4,900,000 Year 3 3,600,000 1,100,000...
ADVERTISEMENT
ADVERTISEMENT
ADVERTISEMENT