Question
In: Finance
A firm is planning to purchase a new equipment and answer the following questions according to...
A firm is planning to purchase a new equipment and answer the following questions according to what you have learned.
Data are shown below:
The new equipment will cost $7,500. And it would be depreciated on a straight-line basis over the project's 5-year life (depreciation rate is 20% per year) and would require additional $200 net operating working capital that would be recovered at the end of the project's life. There is no salvage value.
After purchasing this equipment, firm could sell 1000 products per year at $6 per one. And operating costs is 50% of sale revenue. Tax rate is 40% and Weighted average cost of capital is 15%.
Questions: (Please list the necessary steps not only a final number)
Please show the process of CF estimation and based on the CF information you get to answer following questions.
What is the project's NPV? Should the firm purchase this equipment based on NPV?
What is the project's IRR? Should the firm purchase this equipment based on IRR?
What is the project's MIRR?
What is the project's Payback?
Solutions
jeff jeffy answered 1 year agoRelated Solutions
A firm is planning to purchase a new equipment and answer the following questions according to...
A firm
is planning
to purchase a new equipment and
answer the following questions according to what you have
learned.
Data are shown
below:
The new equipment will cost $7,500.
And it would be depreciated on a straight-line basis over the
project's 5-year life (depreciation rate is 20% per year) and would
require additional $200 net operating working capital that would be
recovered at the end of the project's life. There is no salvage
value.
After purchasing this equipment, firm...
A firm is considering the following two competing proposals for the purchase of new equipment. Assume...
A firm is considering the following two competing
proposals for the purchase of new equipment.
Assume straight-line depreciation and a tax rate of 20
percent.
(a) Calculate the net present value of each alternative
at a discount rate of 10 percent.
(b) If 10 percent is the required rate of return, which
alternative should be selected? Why?
Please show all steps. Don't round off until you get to the
end.
A
B
Net Cash Outlay
9000
7500
Salvage Value
0...
A firm can purchase new equipment for a $150,000 initial investment.
NPV and maximum return
A firm can purchase new equipment for a $150,000 initial investment. The equipment generates an annual after-tax cash inflow of $44,400 for 4 years.
a. Determine the net present value
(NPV)
of the asset, assuming that the firm has a cost of capital of
10%.
Is the project acceptable?
b. Determine the maximum required rate of return that the firm can have and still accept the asset.
ABC, Inc is planning the purchase of new equipment that costs $149,331. The project is expected...
ABC, Inc is planning the purchase of new equipment that costs
$149,331. The project is expected to last for 14 years. Each year,
the new project is expected to sell 103 units for $480 per unit.
The variable costs are expected to $50 per unit and the fixed costs
are expected to be $23,038. The equipment will be depreciated on a
straight-line basis over the 14-year life of the project. That is,
the depreciation each year will be $149,331/14. Assuming...
ABC, Inc is planning the purchase of new equipment that costs $149,331. The project is expected...
ABC, Inc is planning the purchase of new equipment that costs
$149,331. The project is expected to last for 14 years. Each year,
the new project is expected to sell 103 units for $480 per unit.
The variable costs are expected to $50 per unit and the fixed costs
are expected to be $23,038. The equipment will be depreciated on a
straight-line basis over the 14-year life of the project. That is,
the depreciation each year will be $149,331/14. Assuming...
Los Angeles County Hospital is planning to purchase a new piece of medical equipment with a...
Los Angeles County Hospital is planning to purchase a new
piece of medical equipment with a list price of $3,000,000. The
medical equipment supplier presents County with two offers:
Offer 1: County can purchase the medical equipment at a 10%
discount off the list price, but it must pay the final
(post-discount) price today.
Offer 2: County can purchase the medical equipment at a 5%
discount off the list price with two-year, no-cost financing. Under
this offer, half of the...
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QuattroMarti Company (QMC), a clothing and accessories producing
firm, is planning to purchase a new and more efficient packing and
labelling equipment to replace the old one that was bought and
installed five years ago for $200,000(including shipping and
installation). The old equipment has been depreciated using
straight-line method with an expected useful life of 10 years and
zero salvage value. QMC management believes they can sell the old
equipment for $120,000, which is its current market value. The new...
Your company, Bearcat Inc., is planning to purchase new equipment with a price of $1,165,000. Bearcat...
Your company, Bearcat Inc., is planning to purchase new
equipment with a price of $1,165,000. Bearcat Inc. is working out
the financing plan with the manufacturer, and is considering the
choice to finance for 36, 48, or 60 months at an annual interest
rate of 5.124%. But you want to pay off the loan as quickly
as possible. Bearcat Inc. has other projects in the
company that require cash flow, therefore, you have some
constraints that have to be considered...
NPV and maximum return A firm can purchase new equipment for a $20,500 initial investment. The...
NPV and maximum return A firm can purchase new equipment for a
$20,500 initial investment. The equipment generates an annual
after-tax cash inflow of $5,000 for 7 years.
a. Determine the net present value (NPV) of the asset,
assuming that the firm has a cost of capital of 11%. Is the
project acceptable?
b. Determine the maximum required rate of return that the firm
can have and still accept the asset.
NPV and maximum return: A firm can purchase new equipment for a $21,000 initial investment. The...
NPV and maximum return: A firm can purchase new equipment for a
$21,000 initial investment. The equipment generates an annual
after-tax cash inflow of $8,000 for 55 years.
a. Determine the net present value (NPV) of the asset,
assuming that the firm has a cost of capital of 12%. Is the
project acceptable?
b. Determine the maximum required rate of return that the firm
can have and still accept the asset.
Please show and explain work!
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