Question
In: Finance
A company is considering a 6-year project that requires an initial outlay of $30,000. The project...
A company is considering a 6-year project that requires an initial outlay of $30,000. The project engineer has estimated that the operating cash flows will be $3,000 in year 1, $6,000 in year 2, $7,000 in year 3, $7,000 in year 4, $7,000 in year 5, and $8,000 in year 6. At the end of the project, the equipment will be fully depreciated, classified as 5-year property under MACRS. The project engineer believes the equipment can be sold for $6,000 at the end of the project. If the tax rate is 35% and the required rate of return is 18%, what is the net present value (NPV) of this project? (Answer to the nearest dollar.)
Solutions
jeff jeffy answered 1 year agoRelated Solutions
A company is considering a 6-year project that requires an initial outlay of $23,000. The project...
A company is considering a 6-year project that requires an
initial outlay of $23,000. The project engineer has estimated that
the operating cash flows will be $4,000 in year 1, $6,000 in year
2, $7,000 in year 3, $7,000 in year 4, $7,000 in year 5, and $8,000
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The Sampson Company is considering a project that requires an initial outlay of $75,000 and produces...
The Sampson Company is considering a project that requires an
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year for five years. Sampson’s cost of capital is 10%.
a. Calculate the project’s payback period by making a single
division rather than accumulating cash inflows. Why is this
possible in this case?
b. Calculate the project’s IRR, recognizing the fact that the
cash inflows are an annuity. Is the project acceptable? Did your
calculation in this part result...
The Sampson Company is considering a project that requires an initial outlay of $75,000 and produces...
The Sampson Company is considering a project that requires an
initial outlay of $75,000 and produces cash inflows of $20,806 each
year for five years. Sampson's cost of capital is 8%.
Calculate the project's payback period by making a single
division rather than accumulating cash inflows. Round the answer to
two decimal places.
year(s)
Calculate the project's IRR, recognizing the fact that the cash
inflows are an annuity. Round PVFA values in intermediate
calculations to four decimal places. Round the...
Your company is considering a project with an initial outlay of $1,000 in year zero and...
Your company is considering a project with an initial outlay of
$1,000 in year zero and the following cash flows over the next 4
years:
Year
Cash flow
1
200
2
300
3
400
4
500
Assuming cost of capital is 11%:
Use Scenario manager to calculate Expected NPV
(format your answer to 2 decimal
places) given the following three
scenarios and their probabilities of occurrence:
Scenario
Cost of capital
Probability
Best case scenario
9%
25%
Most likely case Scenario...
Your company is considering a project with an initial outlay of $10,000 in year zero and...
Your company is considering a project with an initial
outlay of $10,000 in year zero and the following cash
flows over the next 4 years:
Year
Cash flow
1
2,000
2
3,000
3
4,000
4
5,000
Assuming cost of capital is 11%:
1) The project's Modified Internal Rate of
Return is:
12.24%
12.50%
0%
11%
13.00%
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...
The company above is considering a 5 year project which would require an initial outlay of...
The company above is considering a 5 year project which would
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equipment (depreciated straight line to zero over 8 years). Salvage
value in year 5 will be $200,000. In addition, the company will
need $200,000 initial investment in working capital. Tax rate is
34%. The project will produce OCF of $350,000 for 5 years. NPV IRR
PI Payback and Discounted Payback
18 A firm is considering an investment project which requires the initial outlay of $10 million....
18 A firm is considering an investment project which requires
the initial outlay of $10 million. The 12-year project is expected
to generate annual net cash flows each year of $1 million and have
the expected terminal value at the end of the project of $5
million. The cost of capital is 6 percent, and its marginal tax
rate is 40 percent. Calculate the profitability index of this
project.
0.84
0.09
1.70
1.34
1.09
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