Question
In: Economics
You are the owner of a large data-services firm and are deciding on the purchase of...
You are the owner of a large data-services firm and are deciding on the purchase of a new hardware cooling system that you expect will yield $233,300 in cost-savings per year for the next 15 years. The installation of this cooling system will cost $3,000,000.
1. At face value, does this system seem profitable? By how much?
2. Assume that your company uses a discount rate of 6%.
a. What is the Net Present Value (NPV) of this project?
b. How does the NPV of this project change as you assume a higher or lower discount rate? Why?
c. What is the IRR/ROI of this project?
d. How much should the yearly cost-savings be in order to break even? i. (hint) use goal-seek/what-if analysis
3. Suppose that you decide to finance the purchase of this system through a loan from the bank. The bank is willing to loan this money over an 8 year term at an interest rate of 4% per year.
a. Using a 70/30 debt-to-equity ratio, what is the NPV of this project? i. (hint) calculate the yearly payment using excel function “PMT”
b. How does the NPV of this project change if a larger portion is financed through equity (e.g. debt-to-equity ratio of 60/40)? Why?
Solutions
Expert Solution
I hope this helps.
As no specific question was mention i have only answered the first four sub-part as per the protocol
Rahul Sunny answered 1 year agoRelated Solutions
You are the owner of a large data-services firm and are deciding on the purchase of...
You are the owner of a large data-services firm and are deciding
on the purchase of a new hardware cooling system that you expect
will yield $233,300 in cost-savings per year for the next 15 years.
The installation of this cooling system will cost $3,000,000.
3. Suppose that you decide to finance the purchase of this
system through a loan from the bank. The bank is willing to loan
this money over an 8 year term at an interest rate...
Problem Set 1 You are the owner of a large data-services firm and are deciding on...
Problem Set 1 You are the owner of a large data-services firm
and are deciding on the purchase of a new hardware cooling system
that you expect will yield $233,300 in cost-savings per year for
the next 15 years. The installation of this cooling system will
cost $3,000,000.
1. At face value, does this system seem profitable? By how
much?
2. Assume that your company uses a discount rate of 6%.
a. What is the Net Present Value (NPV) of...
Problem Set 1 You are the owner of a large data-services firm and are deciding on...
Problem Set 1
You are the owner of a large data-services firm and are deciding
on the purchase of a new hardware cooling system that you expect
will yield $233,300 in cost-savings per year for the next 15 years.
The installation of this cooling system will cost $3,000,000.
1. At face value, does this system seem profitable? By how
much?
2. Assume that your company uses a discount rate of 6%.
a. What is the Net Present Value (NPV) of...
A trading firm is deciding between subscribing to three different data services. Each service will generate...
A trading firm is deciding between subscribing to three
different data services. Each service will generate revenues of
$500,000 per month for four years with the first payment received
in one month. The three services available are as follows:
(i) pay $600,000 today plus a monthly fee. The fee is $80,000 in
one month then decrases by five percent per month for eleven
months. Then it remains the same for the next three years.
(ii) Pay two million today.
(iii)...
You are a business owner of a firm that services trucks. A customer would like to...
You are a business owner of a firm that services trucks. A
customer would like to rent a truck from you for one week, while
you service his truck. You must decide whether or not to rent him a
truck. You have an extra truck that you will not use for any other
purpose during this week. This truck is leased for a full year from
another company for $300/ week plus $.50 for every mile driven. You
also have...
You are a business owner of a firm that services trucks. A customer would like to...
You are a business owner of a firm that services trucks. A
customer would like to rent a truck from you for one week, while
you service his truck. You must decide whether or not to rent him a
truck. You have an extra truck that you will not use for any other
purpose during this week. This truck is leased for a full year from
another company for $300/ week plus $.50 for every mile driven. You
also have...
An owner of a large ranch is considering the purchase of a tractor with a front-end...
An owner of a large ranch is considering the purchase of a
tractor with a front-end loader to clean his corrals instead of
hiring workers that do it with a pitch fork. He has given you the
following information and has asked you to evaluate this
investment. The equipment costs $40,000. The rancher expects that
he will save $11,500 a year that is usually paid to workers that
clean out the corral by hand. However, he will incur an additional...
Pick a firm from which you purchase goods or services or by which you are employed....
Pick a firm from which you purchase goods or services
or by which you are employed. Identify the firm’s relevant market
structure. Strongly support your answer with theory from class. Be
as detailed as possible and expand upon each concept. For example,
if the firm is monopolistically competitive, how exactly do they
differentiate their product? Or if its in an oligopoly, how does
the firm react to its competitors’ actions? These are two limited
examples. While you may not address...
Explain the analysis of deciding if you would lease versus purchase.
Explain the analysis of deciding if you would lease versus
purchase.
You are evaluating a growing perpetuity investment from a large financial services firm. The investment promises...
You are evaluating a growing perpetuity investment from a large
financial services firm. The investment promises an initial payment
of $15,200 at the end of this year and subsequent payments that
will grow at a rate of 2.3 percent annually. If you use a 9 percent
discount rate for investments like this, what is the present value
of this growing perpetuity? (Round answer to 2 decimal places, e.g.
15.25.)
Present value
ADVERTISEMENT
ADVERTISEMENT
Latest Questions
- Strong Metals Inc. purchased a new stamping machine at the beginning of the year at a...
- 2. Will the following statements cause any error? (Yes/No) If a statement causes an error, what...
- Part I– Check your file system Step 1: Execute the ls /dev/sd* command to see the...
- import java.util.Scanner; import java.util.Arrays; /* You have 3 small methods to write for this exam; public...
- [The following information applies to the questions displayed below.] At the beginning of the year, Plummer's...
- In sql: Write a query to produce a listing of unique vendor names who have at...
- A compound of molecular formula C7H13Br is a tertiary bromide, is optically inactive, and has one...
ADVERTISEMENT