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In: Finance
You are evaluating a project for your company. The project will require equipment that has a...
You are evaluating a project for your company. The project will require equipment that has a purchase price of $500,000, and will need to include $60,000 for delivery costs and $70,000 for installation related expenses. The equipment will be depreciated using MACRS as a 10 year class asset. Assume you expect a salvage value of $50,000 at the end of the projects life. In addition, land will need to be purchased for $1,500,000. The land is expected to increase in value by 5% per year over the life of the project, and will be sold at the end of the project’s life. Net working capital of $150,000 will be needed for the project, and will be returned at the end of the project’s life. The project has a useful life of 15 years.
The project will generate revenues of $900,000 each year, and have cash operating expenses of $550,000. The tax rate for ordinary income is 40%, and the tax rate for capital gains is 20%. The required rate of return is 12%. What is the NPV for the project? Also, calculate the IRR, MIRR, Profitability Index, and Payback for this project.
Solutions
jeff jeffy answered 2 years agoRelated Solutions
You are evaluating a project for your company. The project will require equipment that has a...
You are evaluating a project for your company. The project will
require equipment that has a purchase price of $500,000, and will
need to include $60,000 for delivery costs and $70,000 for
installation related expenses. The equipment will be depreciated
using MACRS as a 10 year class asset. Assume you expect a salvage
value of $50,000 at the end of the projects life. In addition, land
will need to be purchased for $1,500,000. The land is expected to
increase in...
Your company is evaluating a project that will require the purchase of an asset with a...
Your company is evaluating a project that will require the
purchase of an asset with a price of $16,000 the shipping will cost
an additional $1,500 and installation will be $850. The new project
will require an increase in inventory of $300, an increase in A/R
of $200 and an increase in A/P of $100 in the initial period.
Assuming tax rate of 30%, what is the initial outlay, in year 0,
for this project?
Pear Orchards is evaluating a new project that will require equipment of $261,000. The equipment will...
Pear Orchards is evaluating a new project that will require
equipment of $261,000. The equipment will be depreciated on a
5-year MACRS schedule. The annual depreciation percentages are
20.00 percent, 32.00 percent, 19.20 percent, 11.52 percent, and
11.52 percent, respectively. The company plans to shut down the
project after 4 years. At that time, the equipment could be sold
for $74,900. However, the company plans to keep the equipment for a
different project in another state. The tax rate is...
Pear Orchards is evaluating a new project that will require equipment of $237,000. The equipment will...
Pear Orchards is evaluating a new project that will require
equipment of $237,000. The equipment will be depreciated on a
5-year MACRS schedule. The annual depreciation percentages are
20.00 percent, 32.00 percent, 19.20 percent, 11.52 percent, and
11.52 percent, respectively. The company plans to shut down the
project after 4 years. At that time, the equipment could be sold
for $59,300. However, the company plans to keep the equipment for a
different project in another state. The tax rate is...
Pear Orchards is evaluating a new project that will require equipment of $247,000. The equipment will...
Pear Orchards is evaluating a new project that will require
equipment of $247,000. The equipment will be depreciated on a
5-year MACRS schedule. The annual depreciation percentages are
20.00 percent, 32.00 percent, 19.20 percent, 11.52 percent, and
11.52 percent, respectively. The company plans to shut down the
project after 4 years. At that time, the equipment could be sold
for $65,800. However, the company plans to keep the equipment for a
different project in another state. The tax rate is...
Q1: Your company is evaluating a new project that will require the purchase of an asset...
Q1: Your company is evaluating a new project that will require
the purchase of an asset for $22,000
installed. The asset will be depreciated S/L for 5 years to a
zero salvage.
Your company is expecting the asset to have a market value of
$5,500 at the end of 4 years.
The applicable tax rate is 30% and the cost of capital is
12%
a) Calculate the after tax asset value for the asset at the end
of 4 years....
Using Excell Your company is evaluating a new project that will require the purchase of an...
Using Excell
Your company is evaluating a new project that will require the
purchase of an asset for $25,000 installed. The asset will be
depreciated S/L for 5 years to zero salvage. Your company is
expecting the asset to have a market value of $4,000 at the end of
5 years. The applicable tax rate is 30% and the cost of capital is
12%
a) Calculate the after tax asset value for the asset at the end
of 5 years....
1. Your company is evaluating a new project that will require the purchase of an asset...
1. Your company is evaluating a new project that will require
the purchase of an asset for $22,000 installed. The asset will be
depreciated S/L for 5 years to a zero salvage. Your company is
expecting the asset to have a market value of $5,500 at the end of
4 years. The applicable tax rate is 30% and the cost of capital is
12%
a) Calculate the after tax asset value for the asset at the end
of 4 years....
Your Company is considering a new project that will require $880,000 of new equipment at the...
Your Company is considering a new project that will require
$880,000 of new equipment at the start of the project. The
equipment will have a depreciable life of 5 years and will be
depreciated to a book value of $300,000 using straight-line
depreciation. The cost of capital is 13%, and the firm's tax rate
is 21%. Estimate the present value of the tax benefits from
depreciation.
$116,000
$91,640
$85,680
$24,360
Your company is considering a new project that will require $10,000 of new equipment at the...
Your company is considering a new project that will
require $10,000 of new equipment at the start of the project. The
equipment will have a depreciable life of five years and will be
depreciated to a book value of $3,000 using straight-line
depreciation. The cost of capital is 9 percent, and the firm's tax
rate is 34 percent. Estimate the present value of the tax benefits
from depreciation.
A.
$476
B.
$924
C.
$1,400
D.
$1,851
Which statement is true...
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