Question
In: Finance
PDQ Corporation is considering an investment proposal that requires an initial investment of $100,000 in equipment....
- PDQ Corporation is considering an investment proposal that requires an initial investment of $100,000 in equipment. Fully depreciated existing equipment may be disposed of for $30,000 pre-tax. The proposed project will have a five-year life and is expected to produce additional revenue of $45,000 per year. Expenses other than depreciation will be $12,000 per year. The new equipment will be depreciated to zero over the five-year useful life, but it is expected to actually be sold for $25,000. PDQ has a 40% tax rate.
Solutions
Expert Solution
While considering the given information, it is found out that the project is giving a net cash inflow of $72,000 during the life of the project. If the company is having no cost of capital, the project can be accepted
Calculation of pay back period of the project
Pay back period = 2 + (26,400 / 27,800) = 2.95 years
If the company is having a cost of capital, the Free cash flow has to be discounted with discounting factor of concerned year (1+r)^n where n= year, and r=cost of capital
jeff jeffy answered 1 year agoRelated Solutions
1. Chloe is considering an investment proposal that requires an initial investment of $88,700, has predicted...
1. Chloe is considering an investment proposal that
requires an initial investment of $88,700, has predicted cash
inflows of $28,000 per year for four years and no salvage
value.
At a discount rate of 8 percent the projects net present value
is:
a. $ 4,036
b. $15,256
c. $23,300
d. $92,736
2. The internal rate of return of the investment
proposal presented in Question 2 is:
a. 8 percent
b. 10 percent
c. 12 percent
d. Less than 8 percent...
A firm is considering a project that requires an initial investment of $300,000 in new equipment,...
A firm is considering a project that requires an initial
investment of $300,000 in new equipment, which has a five-year life
and a CCA rate of 30 percent. An initial investment in raw
materials inventory of $50,000 is also required to support the
project, which will rise to 15 percent of sales. The project will
generate sales revenue of $400,000 in the first year, which will
grow at 4 percent per year. Variable costs will be $220,000 for the
first...
Kendall Corporation is considering a project that requires an initial investment of $900,000 and has a...
Kendall Corporation is considering a project that requires an
initial investment of $900,000 and has a useful life of 12 years.
The annual net cash receipts will be $175,000. The salvage value of
the assets used in the project will be $50,000. The company’s tax
rate is 35%. For tax purposes, the entire initial investment
(without any reduction for salvage value) will be depreciated over
12 years. The company uses a discount rate of 20%. Provide the
variables you entered...
Your company is considering a new 3-year project that requires an initial investment in equipment of...
Your company is considering a new 3-year project that requires
an initial investment in equipment of $3 million. Prior to this,
you had engaged a consultant to study the feasibility of the new
project and after an extensive market survey, the consultant
confirmed your belief that the project would be viable. Your
company is charged $100,000 for the feasibility study.
The equipment will be depreciated straight line to zero over the 3
years of its useful life. In addition, you...
PADICO is considering an investment project. The project requires an initial $5 million outlay for equipment...
PADICO is considering an investment project. The project
requires an initial $5 million outlay for equipment and machinery.
Sales are projected to be $2.5 million per year for the next four
years. The equipment will be fully depreciated straight-line by the
end of year 4. The cost of goods sold and operating expenses (not
including depreciation) are predicted to be 30% of sales. The
equipment can be sold for $500,000 at the end of year 4.Padico also
needs to add...
PADICO is considering an investment project. The project requires an initial $5 million outlay for equipment...
PADICO is considering an investment project. The project
requires an initial $5 million outlay for equipment and machinery.
Sales are projected to be $2.5 million per year for the next four
years. The equipment will be fully depreciated straight-line by the
end of year 4. The cost of goods sold and operating expenses (not
including depreciation) are predicted to be 30% of sales. The
equipment can be sold for $500,000 at the end of year 4.Padico also
needs to add...
PADICO is considering an investment project. The project requires an initial $5 million outlay for equipment...
PADICO is considering an investment project. The project
requires an initial $5 million outlay for equipment and machinery.
Sales are projected to be $2.5 million per year for the next four
years. The equipment will be fully depreciated straight-line by the
end of year 4. The cost of goods sold and operating expenses (not
including depreciation) are predicted to be 30% of sales. The
equipment can be sold for $500,000 at the end of year 4.Padico also
needs to add...
Your company is considering a new 3-year project that requires an initial investment in equipment of...
Your company is considering a new 3-year project that requires
an initial investment in equipment of $3 million. Prior to this,
you had engaged a consultant to study the feasibility of the new
project and after an extensive market survey, the consultant
confirmed your belief that the project would be viable. Your
company is charged $100,000 for the feasibility study. The
equipment will be depreciated straight line to zero over the 3
years of its useful life. In addition, you...
Consider the following capital investment proposal: It requires an initial investment of $1,170 million. The project...
Consider the following capital investment proposal:
It requires an initial investment of $1,170 million. The project is
expected to generate the following net cash flows:
$417 million in year 1
$328 million in year 2
$475 million in year 3
$531 million in year 4.
If the company uses a discount rate of 11%, how much is the
profitability index?
Enter your answer in millions. Round to one decimal.
Please show work
A project requires an initial investment of $100,000 and is expected to produce a cash inflow...
A project requires an initial investment of $100,000 and is
expected to produce a cash inflow before tax of $27,300 per year
for five years. Company A has substantial accumulated tax losses
and is unlikely to pay taxes in the foreseeable future. Company B
pays corporate taxes at a rate of 21% and can claim 100% bonus
depreciation on the investment. Suppose the opportunity cost of
capital is 10%. Ignore inflation.
a. Calculate project NPV for each company.
(Do not...
ADVERTISEMENT
ADVERTISEMENT
Latest Questions
- (2) Cite an example on how organizations like Google, Facebook, Youtube etc collect data for image...
- The legal landscape is perpetually changing. Psychologists must remain abreast of these changes to avoid potentially...
- We are evaluating a project that costs $1.68 million, has a six-year life, and has no...
- In C++ Having call-by-reference allows one to use storeback parameters, i.e., parameters whose values are transmitted...
- You must evaluate a proposal to buy a new milling machine. The base price is $175,000,...
- “Triangle Guessing” game in Python The program accepts the lengths of three (3) sides of a...
- THIS PROGRAM HAS TO BE WRITTEN IN C Single function to perform the parity computation on...
ADVERTISEMENT