Kamala is interested in buying a property for $150,000. The costs are as follow: $50,000 in...

Kamala is interested in buying a property for $150,000. The costs are as follow: $50,000 in yr 1 and 2 for repairs $10,000 in yr 3 and beyond for repairs She will start making money: $25,000 per year when she opens in yr 4 which will then start increasing by $40,000 each yr. By assuming all cash flows (with the exception of first costs) are end of period cash flows & the interest rate is seven percent 1. what is the present value(worth) of Kamala revenue through year 10? Is it + or negative? Could this be considered a good investment,why or why not? Please show work detailed, will upvote!(: thank you

Expert Solution

The Net cashflows of the firm are calculated below

Time	Costs	Earnings	Net Cashflows
0	-150000		-150000
1	-50000		-50000
2	-50000		-50000
3	-10000		-10000
4	-10000	25000	15000
5	-10000	65000	55000
6	-10000	105000	95000
7	-10000	145000	135000
8	-10000	185000	175000
9	-10000	225000	215000
10	-10000	265000	255000

PV of revenues = -150000-50000/1.07+-50000/1.07^2-10000/1.07^3+15000/1.07^4+55000/1.07^5+95000/1.07^6+135000/1.07^7+175000/1.07^8+215000/1.07^9+255000/1.07^10

=$297893.92

As the Present worth is positive, it can be considered as a good investment

jeff jeffy answered 2 years ago

You are thinking about buying a piece of art that costs $50,000. The art dealer is...

You are thinking about buying a piece of art that costs $50,000. The art dealer is proposing the following? deal: He will lend you the? money, and you will repay the loan by making the same payment every two years for the next 10 years? (i.e., a total of 5 ?payments). If the interest rate is 7% per? year, how much will you have to pay every two? years?

An asset in the five-years MACRS property class costs $150,000 and has a zero estimated salvage...

An asset in the five-years MACRS property class costs $150,000 and has a zero estimated salvage value after six years of use. The asset will generate annual revenues of $320,000 and will require $80,000 in annual labor costs and $50,000 in annual material expenses. Assume a tax rate of 21%. Compute the after-tax cash flows over the project life and the NPW for a MARR = 12%. Is the investment acceptable?

Inventories $150,000 Cost of Goods Sold $250,000 Administrative Expenses $50,000 Accumulated Depreciation $150,000 Sales $700,000 Depreciation...

Inventories $150,000 Cost of Goods Sold $250,000 Administrative Expenses $50,000 Accumulated Depreciation $150,000 Sales $700,000 Depreciation Expense $25,000 Selling Expenses $150,000 Common Stock Dividends $18,000 Interest Expense $18,000 Corporate Tax Rate 30% Prepare an income statement using the information given below. Make sure to identify gross profit, operating income, and net income. Please define what each number represents and why it is important to a business.

A property is sold for $150,000 with the buyer agreeing to assume an existing loan of...

A property is sold for $150,000 with the buyer agreeing to assume an existing loan of $98,000 and executing a second note and deed of trust to the seller for $30,000. The purchase contract states that the unpaid balance of any existing loan is approximate and at closing any differences shall be reflected in cash. If the buyers closing costs are $2,500 and the remaining balance of the first loan is $89,800, what is the total cash due from the...

You purchased a rental property that generates $50,000 during the first year. The property will produce...

You purchased a rental property that generates $50,000 during the first year. The property will produce an additional 49 cash flows growing at a rate of 4 percent per year. If the interest rate is 8 percent compounded yearly and rental payments are made at the beginning of each year, what should the value of this property be?

You consider buying an investment commercial property in New York. This property is 100% occupied and...

You consider buying an investment commercial property in New York. This property is 100% occupied and has three tenants, whose leases have 10 years remaining until the end of the lease term. 1st tenant occupies 5,000 SF and pays the base rent of $10,000/month. 2nd tenant occupies 1,500 SF, paying the base rent of $2,500/month. 3rd tenant occupies 3,000 SF, paying the base rent of $5,000/month. All three tenants have the absolute Triple Net lease and 3% annual increase in...

Cash $ 10,000 Accounts payable $ 30,000 Receivables 50,000 Notes payable 20,000 Inventories 150,000 Total current liabilities $ 50,000...

Cash $ 10,000 Accounts payable $ 30,000 Receivables 50,000 Notes payable 20,000 Inventories 150,000 Total current liabilities $ 50,000 Total current assets $ 210,000 Long-term debt 50,000 Net Fixed assets 90,000 Common equity 200,000 Total assets $ 300,000 Total liabilities and equity $ 300,000 Net Sales 200,000 Net income 15,000 Lloyd Inc. Has sales of $200,000, a net income of $15,000 (balance sheet posted above). The new owner thinks that inventories are excessive and can be lowered to the point where the current...

A firm incurred the $100,000 in acquisition costs, $70,000 in exploration costs, $150,000 in development costs,...

A firm incurred the $100,000 in acquisition costs, $70,000 in exploration costs, $150,000 in development costs, and $80,000 in restoration costs. It expects to recover 500,000 units of natural resources from the project. Record the journal entries for the following events and explain how you calculated your amounts. Assume the firm expects a successful project and capitalizes acquisition costs. Completion of all acquisition activities. Completion of exploration. Completion of development Completion of restoration Prepares a balance sheet after selling 50,000 units of the...

QUESTION #5: X Company is considering buying a new machine that will cost $150,000 and that...

QUESTION #5: X Company is considering buying a new machine that will cost $150,000 and that will generate annual cash inflows of $31,470 for 6 years. What is the approximate internal rate of return?

DeLuxe Furniture is thinking of buying a wood cutting machine for $150,000 that would save it...

DeLuxe Furniture is thinking of buying a wood cutting machine for $150,000 that would save it $40,000 per year in production costs. The savings would be constant over the project's 3-year life. The machine is to be linearly depreciated to zero and will have no resale value after 3 years. The machine would require an additional $9,000 in net operating working capital. The appropriate cost of capital for this project is 14% and the company's tax rate is 35%. Year...

Question