Question
In: Accounting
A firm is considering a project that requires no new purchases of equipment. Instead, they will...
A firm is considering a project that requires no new purchases of equipment. Instead, they will repurpose existing machines that they already own. These machines were originally bought for $1 million 10 years ago and were depreciated straight line over that period to a book value of $0 today. Their market value is estimated to be $65,000. The machines require no investment in repairs or refurbishment for the new project. The new project is expected to generate revenues of $90,000 per year for four years. Operating expenses will be 72% of revenues. The project requires an initial investment in working capital of $2,000. Further investments in working capital will be needed as follows: an additional $1,000 at t=1, $1,500 at t=2, and $3,000 at t=3. It is assumed that all of the investments in working capital made over t=0,1,2,3 will be completely recovered at the end of the project. The corporate tax rate is 34%. At t=4, the market value of the equipment is expected to be $25,000 when the company plans to liquidate the equipment. If the cost of capital is 12.75%, should the investment be undertaken?
|
0 |
1 |
2 |
3 |
4 |
|
Solutions
ekkarill92 answered 1 year agoRelated Solutions
A firm is considering a project that requires an initial investment of $300,000 in new equipment,...
A firm is considering a project that requires an initial
investment of $300,000 in new equipment, which has a five-year life
and a CCA rate of 30 percent. An initial investment in raw
materials inventory of $50,000 is also required to support the
project, which will rise to 15 percent of sales. The project will
generate sales revenue of $400,000 in the first year, which will
grow at 4 percent per year. Variable costs will be $220,000 for the
first...
Elemental is considering another project which requires new equipment at a cost of $70,000. The equipment...
Elemental is considering another project which requires new
equipment at a cost of $70,000. The equipment has a 3 year tax life
and will be fully depreciated by the straight-line method over 3
years. When the project closes down at the end of the third year,
it is expected to sell for $5000 before taxes. The project will
require new working capital of $10000, and is expected to be fully
recovered at the end of the project's life. Project revenues...
ATT is considering a project. The project requires to purchase an equipment with a cost of...
ATT is considering a project. The project requires to purchase
an equipment with a cost of $1.55 million. The equipment will be
depreciated straight-line to a zero book value over the 9-year life
of the project. At the end of the project it will be sold for a
market value of $240,000. The project will not change sales but
will reduce operating costs by $399,000 per year. The project also
requires an initial investment of $52,000 in net working capital,...
Your company is considering a new 3-year project that requires an initial investment in equipment of...
Your company is considering a new 3-year project that requires
an initial investment in equipment of $3 million. Prior to this,
you had engaged a consultant to study the feasibility of the new
project and after an extensive market survey, the consultant
confirmed your belief that the project would be viable. Your
company is charged $100,000 for the feasibility study.
The equipment will be depreciated straight line to zero over the 3
years of its useful life. In addition, you...
Your company is considering a new 3-year project that requires an initial investment in equipment of...
Your company is considering a new 3-year project that requires
an initial investment in equipment of $3 million. Prior to this,
you had engaged a consultant to study the feasibility of the new
project and after an extensive market survey, the consultant
confirmed your belief that the project would be viable. Your
company is charged $100,000 for the feasibility study. The
equipment will be depreciated straight line to zero over the 3
years of its useful life. In addition, you...
Firm AAA is considering a new three-year new project that requires an initial fixed asset investment...
Firm AAA is considering a new three-year new project that
requires an initial fixed asset investment of $2.28 million. The
fixed asset will be depreciated straight-line to zero over its
three-year tax life, after which time it will be worthless. The
project is estimated to generate $2,120,000 in annual sales, with
costs of $745,000. The project requires an initial investment in
net working capital of $260,000, and the fixed asset will have a
market value of $280,000 at the end...
Explorer, Inc. is considering a new 4-year project that requires an initial fixed asset (equipment) investment...
Explorer, Inc. is considering a new 4-year project that requires
an initial fixed asset (equipment) investment of $200,000. The
fixed asset is three-year MACRS property for tax purposes. In four
years, the equipment will be worth about half of what we paid for
it. The project is estimated to generate $500,000 in annual sales,
with costs of $400,000. The firm has to invest $100,000 in net
working capital at the start. After that, net working capital
requirements will be 25...
"Explorer, Inc. is considering a new 4-year project that requires an initial fixed asset (equipment) investment...
"Explorer, Inc. is considering a new 4-year project that
requires an initial fixed asset (equipment) investment of $200,000.
The fixed asset is three-year MACRS property for tax purposes. In
four years, the equipment will be worth about half of what we paid
for it. The project is estimated to generate $500,000 in annual
sales, with costs of $400,000. The firm has to invest $100,000 in
net working capital at the start. After that, net working capital
requirements will be 25...
PADICO is considering an investment project. The project requires an initial $5 million outlay for equipment...
PADICO is considering an investment project. The project
requires an initial $5 million outlay for equipment and machinery.
Sales are projected to be $2.5 million per year for the next four
years. The equipment will be fully depreciated straight-line by the
end of year 4. The cost of goods sold and operating expenses (not
including depreciation) are predicted to be 30% of sales. The
equipment can be sold for $500,000 at the end of year 4.Padico also
needs to add...
PADICO is considering an investment project. The project requires an initial $5 million outlay for equipment...
PADICO is considering an investment project. The project
requires an initial $5 million outlay for equipment and machinery.
Sales are projected to be $2.5 million per year for the next four
years. The equipment will be fully depreciated straight-line by the
end of year 4. The cost of goods sold and operating expenses (not
including depreciation) are predicted to be 30% of sales. The
equipment can be sold for $500,000 at the end of year 4.Padico also
needs to add...
ADVERTISEMENT
ADVERTISEMENT
Latest Questions
- I need a paper or a Persusive Speech about why drinking water is important and what...
- 1. Please describe the difference between an accounts receivable and a notes receivable. 2. There are...
- 1. Describe L'Oreal's integrated marketing strategy. What are the strengths? Weaknesses? 2. Describe the function and...
- Worley Company buys surgical supplies from a variety of manufacturers and then resells and delivers these...
- Prove for an adiabatic TP ^ 1-gamma / gamma = constant process. Use the first law...
- A pub opens its door for business at 6:00 PM. From 6:00 P.M. to 8:00 P.M....
- Discussion 2 - An Integrative Approach to Psychopathology: Can you think of any cases of psychopathology...
ADVERTISEMENT