Question
In: Finance
You are considering an investment of $500,000 at time zero for machinery and equipment. Annual revenue...
You are considering an investment of $500,000 at time zero for machinery and equipment. Annual revenue produced by the machinery is estimated to be $400,000 with annual operating costs of $140,000. The investment requires an initial investment of $200,000 for working capital at time zero. The working capital return is equal to the initial working capital investment at the end of the project (8th year). Salvage value of the machinery and equipment is expected to be zero. The minimum After Tax Cash Flow ROR (annual discount rate) is 12% and the effective income tax rate is 38%.
Calculate the ROR (Internal Rate of Return) for this investment project, using the 5 year MACRS schedule for depreciation (see Example 7-7). Note: There will be zero depreciation in Years 7 and 8 in this problem.
Solutions
jeff jeffy answered 1 year agoRelated Solutions
You are considering an investment of $500,000 at time zero for machinery and equipment. Annual revenue...
You are considering an investment of $500,000 at time zero for
machinery and equipment. Annual revenue produced by the machinery
is estimated to be $400,000 with annual operating costs of
$140,000. The investment requires an initial investment of $200,000
for working capital at time zero. The working capital return is
equal to the initial working capital investment at the end of the
project (8th year). Salvage value of the machinery and equipment is
expected to be zero. The minimum After...
Consideration is being given to the investment of $420,000 at time zero for machinery and equipment...
Consideration is being given to the investment of $420,000 at
time zero for machinery and equipment to be depreciated using 7
year straight line depreciation starting in year 1 with the
half-year convention. Annual sales are projected to be $400,000
less annual operating costs of $200,000. Escalation of operating
costs and sales revenue is expected to be a washout from year to
year. $100,000 for working capital investment is also needed at
time zero and working capital return is expected...
You own a building worth $1,000,000 which also has $500,000 of machinery and equipment, and $500,000...
You own a building worth $1,000,000 which also has $500,000 of
machinery and equipment, and $500,000 of ingredients, finished
goods and packaging materials in it on a regular basis. You are
purchasing a Property Insurance policy that, for premium purposes,
has an 80% Coinsurance Clause. Determine how much insurance you
need to purchase to comply with the Coinsurance Clause. Provide
your calculation for this portion of the answer. Describe the
impact to an insurance claim if 1.) You purchased the...
Product A Product B Initial Investment: Cost of Equipment (zero salvage value) $170,000 $380,000 Annual Revenues...
Product A
Product B
Initial Investment:
Cost of Equipment (zero salvage value)
$170,000
$380,000
Annual Revenues and costs:
Sales Revenue:
$250,000
$350,000
Variable Expenses:
$120,000
$170,000
Depreciation Expense:
$34,000
$76,000
Fixed out-of-pocket operating costs:
$70,000
$50,000
Item
Periods
Amount of Cash Flows
Product A:
Purchase of equipment
$170,000
Net annual cash inflows (above)
$60,000
Net Present Value:
Product B:
Purchase of equipment
$380,000
Net annual cash inflows (above)
$130,000
Net Present Value:
What would the amount of cash flows be?
Shown below are rental and leasing revenue figures for office machinery and equipment in the United...
Shown below are rental and leasing revenue figures for office
machinery and equipment in the United States over a 7-year period
according to the U.S. Census Bureau. Use this data and the
regression tool in the data analysis tool pack to run a linear
regression. Based on the formula you get from the regression
output, answer the following questions: a) What is the forecast for
the rental and leasing revenue for the year 2011? b) How confident
are you in...
Randi Corp. is considering the replacement of some machinery that has zero book value and a...
Randi Corp. is considering the replacement of some machinery
that has zero book value and a current market value of $3,700. One
possible alternative is to invest in new machinery that costs
$30,900. The new equipment has a 5-year service life and an
estimated salvage value of $4,400, will produce annual cash
operating savings of $10,300, and will require a $3,100 overhaul in
year 3. The company uses straight-line depreciation.
Year
FV of $1 at
10%
FV of an ordinary...
The company is considering the purchase of machinery and equipment to set up a line to...
The company is considering the purchase of machinery and
equipment to set up a line to produce a combination washer-dryer.
They have given you the following information to analyze the
project on a 5-year timeline:
Initial cash outlay is $150,000, no residual value.
Sales price is expected to be $2,250 per unit, with $595 per
unit in labor expense and $795 per unit in materials.
Direct fixed costs are estimated to run $20,750 per month.
Cost of capital is 8%,...
the company is considering the purchase of machinery and equipment to set up a line to...
the company is considering the purchase of machinery and
equipment to set up a line to produce a combination washer-dryer.
They have given you the following information to analyze the
project on a 5-year timeline:
Initial cash outlay is $150,000, no residual value.
Sales price is expected to be $2,250 per unit, with $595 per unit
in labor expense and $795 per unit in materials.
Direct fixed costs are estimated to run $20,750 per month.
Cost of capital is 8%,...
the company is considering the purchase of machinery and equipment to set up a line to...
the company is considering the purchase of machinery and
equipment to set up a line to produce a combination
washer-dryer.
They have given you the following information to analyze the
project on a 5-year timeline: Initial cash outlay is $150,000, no
residual value.
Sales price is expected to be $2,250 per unit, with $595 per
unit in labor expense and $795 per unit in materials. Direct fixed
costs are estimated to run $20,750 per month.
Cost of capital is 8%,...
A&Y Inc. considers a 7-year project that requires $500,000 of investment in new machinery and $40,000...
A&Y Inc. considers a 7-year project that requires $500,000
of investment in new machinery and $40,000 in NWC (that will stay
constant for the entire life of the project). At the end of the
project the equipment will be sold for a salvage value of $70,000.
The cost of capital is 10%, the equipment belongs to a CCA class
with d=40%, and the corporate tax rate is 30%
Problem 20: Prof Reynolds was able to use his industry
connections to...
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