A Company is considering investing in a new dock that will cost $350,000. The company expects...

A Company is considering investing in a new dock that will cost $350,000. The company expects to use the dock for 5 years, after which it will be sold for $90,000. LakeFront anticipates annual net cash inflows of $85,000 resulting from the new dock. Instructions

Calculate the net present value of the dock assuming the company's cost of capital is 10%.

Calculate the net present value of the dock assuming the company's cost of capital is 15%.

Expert Solution

The net present value of the dock assuming the company's cost of capital is 10%

Year	Annual cash flows ($)	Present Value Factor (PVF) at 10.00%	Present Value of annual cash flows ($) [Annual cash flow x PVF]

1	85,000	0.9090909	77,272.73
2	85,000	0.8264463	70,247.93
3	85,000	0.7513148	63,861.76
4	85,000	0.6830135	58,056.14
5	175,000 [85,000 + 90,000]	0.6209213	108,661.23

TOTAL		378,099.79

Net Present Value (NPV) = Present value of annual cash inflows – Initial investment costs

= $378,099.79 - $350,000

= $28,099.79

The net present value of the dock assuming the company's cost of capital is 15%

Year	Annual cash flows ($)	Present Value Factor (PVF) at 15.00%	Present Value of annual cash flows ($) [Annual cash flow x PVF]

1	85,000	0.8695652	73,913.04
2	85,000	0.7561437	64,272.21
3	85,000	0.6575162	55,888.88
4	85,000	0.5717532	48,599.03
5	175,000 [85,000 + 90,000]	0.4971767	87,005.93

TOTAL		329,679.09

Net Present Value (NPV) = Present value of annual cash inflows – Initial investment costs

= $329,679.09 - $350,000

= -$20,320.91 (Negative NPV)

NOTE

The Formula for calculating the Present Value Factor is [1/(1 + r)n], Where “r” is the Discount/Interest Rate and “n” is the number of years.

ekkarill92 answered 1 year ago

Stuart Electronics is considering investing in manufacturing equipment expected to cost $350,000. The equipment has an...

Stuart Electronics is considering investing in manufacturing equipment expected to cost $350,000. The equipment has an estimated useful life of four years and a salvage value of $ 22,000. It is expected to produce incremental cash revenues of $175,000 per year. Stuart has an effective income tax rate of 30 percent and a desired rate of return of 12 percent. (PV of $1 and PVA of $1) (Use appropriate factor(s) from the tables provided.) Required Determine the net present...

A company is considering investing in a new project that will cost $6,589,490 and increase net...

A company is considering investing in a new project that will cost $6,589,490 and increase net income by 8.18%. This project will be completely funded by issuing new equity shares. Currently, the firm has 2,196,490 common shares outstanding with a market price of $32.91 per share. The current earnings per share are $1.79. What will be the earnings per share if the project is implemented? $1.73 $1.77 $1.82 $1.86 $1.91

Company XYZ is considering investing in a new machine that will cost $15,000. The machine will...

Company XYZ is considering investing in a new machine that will cost $15,000. The machine will allow the firm to generate sales of $50,000 per year. The machine will have a life of 3 years. The operating expenses of XYZ are projected to be 70% of total sales. The machine will be depreciated on a straight-line basis to a zero salvage value. The market value of the machine in three years is estimated to be $5,000. The marginal tax rate...

A company is considering investing in a project with an initial cost of $250,000. The cost...

A company is considering investing in a project with an initial cost of $250,000. The cost of capital is 15%. The project will generate $100,000 every year for four years. Calculate the NPV & IRR & determine if they should invest in this project.

XYZ corp. is considering investing in a new machine. The new machine cost will $ 8,000...

XYZ corp. is considering investing in a new machine. The new machine cost will $ 8,000 installed. Depreciation expense on the new machine will be $ 1,200 per year for the next five years. At the end of the fifth year XYZ expects to sell the machine for $3000. XYZ will also sell its old machine today that has a book value of $4000 for $4000. The old machine has depreciation expense of $800 per year and zero salvage value....

A company purchased land on which to construct a new building for a cost of $350,000....

A company purchased land on which to construct a new building for a cost of $350,000. Additional costs incurred were: Real estate broker's commissions…………………………. $24,500 Legal fees incurred in the purchase of the real estate………… 1,500 Landscaping……………………………………………….. 8,000 Cost to remove old house located on land…………… 3,000 Proceeds from selling materials salvaged from old house 1,000 What total dollar amount should be charged to Land and what amount should be charged to Building or other accounts? Show your work 5...

daughn corporation is considering investing in a new facility the estimated cost of the facility is...

daughn corporation is considering investing in a new facility the estimated cost of the facility is 1904630 it will be used for 12 years then sold for 713200 the facility will generate annual cash inflows of 370700 and will need new annual cash outflows of 155600 the company has required rate of return of 7%. calculate the internal rate of return on this project

A company is considering investing in project X. The company has a cost of capital of...

A company is considering investing in project X. The company has a cost of capital of 10% p.a. Project X is a 9-year project with an initial cost of 400,000. The project will generate the following cash flows at the end of the years: Years Cash flows 1 90,000 2 80,000 3 50,000 4 50,000 5 50,000 6 50,000 7 50,000 8 50,000 9 15,000 a) Calculate the payback period (in years) for project X. Round your answer to 2 decimal...

Nugent Communication Corp. is investing $7,575,349 in new technologies. The company expects significant benefits in the...

Nugent Communication Corp. is investing $7,575,349 in new technologies. The company expects significant benefits in the first three years after installation (as can be seen by the following cash flows), and smaller constant benefits in each of the next four years. Cash Flows: Year 1: $2,096,205 Year 2: $4,958,521 Year 3: $3,364,720 Year 4-7: $1,356,625 What is the discounted payback period for the project assuming a discount rate of 10 percent?

Tangshan Mining Company is considering investing in a new mining project.

Tangshan Mining Company is considering investing in a new mining project. The firm’s cost of capital is 12 percent and the project is expected to have an initial after tax cost of $5,000,000. Furthermore, the project is expected to provide after-tax operating cash flows of ($1,800,000) in year 1, $2,900,000 in year 2, $2,700,000 in year 3 and $2,300,000 in year 4?Maximum acceptable payback period of this project is 3 years. Calculate the payback period for this project.Calculate the...

Question