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In: Finance
Opportunity cost. Revolution Records will build a new recording studio on a vacant lot next to...
Opportunity cost. Revolution Records will build a new recording studio on a vacant lot next to the operations center. The land was purchased five years ago for $460,000. Today, the value of the land has appreciated to $760,000. Revolution Records did not consider the value of the land in its NPV calculations for the studio project (it had already spent the money to acquire the land long before this project was considered). The NPV of the recording studio is $590,000. Should Revolution Records have considered the land as part of the cash flow of the recording studio? If yes, what value should be used, $460,000 or $760,000? How will the value affect the project?
Solutions
jeff jeffy answered 1 year agoRelated Solutions
Opportunity cost. Revolution Records will build a new recording studio on a vacant lot next to...
Opportunity cost. Revolution Records will build a new recording
studio on a vacant lot next to the operations center. The land was
purchased five years ago for $480 comma 000. Today, the value of
the land has appreciated to $790 comma 000. Revolution Records did
not consider the value of the land in its NPV calculations for the
studio project (it had already spent the money to acquire the land
long before this project was considered). The NPV of...
Cowboy Recording Studio is considering the investment of $143,400 in a new recording equipment. It is...
Cowboy Recording Studio is considering the investment of
$143,400 in a new recording equipment. It is estimated that the new
equipment will generate additional cash flow of $21,000 per year
for each year of its 7-year life and will have a salvage value of
$13,500 at the end of its life. Cowboys’s financial managers
estimate that the firm’s cost of capital is 8%. Use Table 6-4 and
Table 6-5. (Use appropriate factor(s) from the tables provided.
Round the PV factors...
Cowboy Recording Studio is considering the investment of $130,500 in a new recording equipment. It is...
Cowboy Recording Studio is considering the investment of
$130,500 in a new recording equipment. It is estimated that the new
equipment will generate additional cash flow of $19,000 per year
for each year of its 8-year life and will have a salvage value of
$13,500 at the end of its life. Cowboys’s financial managers
estimate that the firm’s cost of capital is 8%. Use Table 6-4 and
Table 6-5.(Use appropriate factor(s) from the tables
provided. Round the PV factors to...
Cowboy Recording Studio is considering the investment of $138,600 in a new recording equipment. It is...
Cowboy Recording Studio is considering the investment of
$138,600 in a new recording equipment. It is estimated that the new
equipment will generate additional cash flow of $20,500 per year
for each year of its 8-year life and will have a salvage value of
$13,500 at the end of its life. Cowboys’s financial managers
estimate that the firm’s cost of capital is 10%. Use Table 6-4 and
Table 6-5.(Use appropriate factor(s) from the tables
provided. Round the PV factors to...
1. Compare the Opportunity Cost of Buying a New Car with the Opportunity Cost of Going...
1. Compare the Opportunity Cost of Buying a New Car with the
Opportunity Cost of Going to College?
2. How would you relate one to the other or compare and analyze
them separately, assuming that they are not mutually exclusive
A company wants to build a new factory. They know the cost to build the factory...
A company wants to build a new
factory. They know the cost to build the factory and have
forecasted the future cash flows from the plant. They want to do an
NPV analysis but are not sure what rate to use. They come to you as
a consultant to figure out their cost of capital.
The information they have given you
is:
They just paid a dividend of $2.75.
Their dividend growth rate is 4.8%. Their current stock price is...
Mutton Motors wants to build a new factory. They know the cost to build the factory...
Mutton Motors wants to build a new factory. They know the cost
to build the factory and have forecasted the future cash flows from
the plant. They want to do an NPV analysis but are not sure what
rate to use. They come to you as a consultant to figure out their
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Opportunity cost of your resource is defined as "the value associated with the next best use...
Opportunity cost of your resource is defined as "the value
associated with the next best use of that resource (which you must
give up)." Decisions you make should reflect your opportunity cost,
and not just your out-of-pocket costs. For example, if you decide
to spend two hours of your time watching TV, the opportunity cost
of your time is the value associated with its next best use
(studying, sleeping, or another use).
When the I-395 Express Lanes first opened in...
A manufacturer plans to open a new plant. The new plant will cost $4,000,000 to build...
A manufacturer plans to open a new plant. The new plant will
cost $4,000,000 to build and make ready for production. Company
management believes that the plant will produce a net profit of
$130,000 in the first year and that profit will increase 5% per
year until year 7 at which point profit will remain constant for
the remainder of the plant’s useful life. Determine the payback
period for the plant. Do not consider the effect of interest.
Express your...
“Technology will actually democratize opportunity. When the new 5G network is implemented and the next billion...
“Technology will actually democratize opportunity. When the new
5G network is implemented and the next billion goes online, the
opportunity will be in the hands of everyone with a good idea.
It’ll be the age of betapreneurs, entrepreneurs who, enabled by
technology, can rapidly test and scale ideas, and bring them to
market.” What does it mean to “democratize opportunity”? “
Data detective/data broker ” is listed as the top “new job”.
What are you doing to improve your data...
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