Suppose the costs of an environmental pollution-control program are $35 million in year 0 (the start of the program), $55 million in year 1, and $35 million in year 2. Suppose the benefits of the program are $20 million in year 1, $45 million in year 2, and $70 million in year 3. In this problem, t is defined as the year (so t = 0 for year 0, etc.). The regulatory authority requires the use of a discount rate of 5%. Use all decimal places in the denominator - round the resulting values to two (2) decimal places and express in dollars ($).
a. Calculate the present value of costs (PVC).
b. Calculate the present value of benefits (PVB).
c. Calculate the present value of net benefits (PVNB).
d. Given your response to part c., should the environmental pollution-control program be implemented? Briefly explain.
In: Economics
Project Cash Flows You are evaluating a project for The Ultimate recreational tennis racket, guaranteed to correct that wimpy backhand. You estimate the sales price of The Ultimate to be $400 per unit and sales volume to be 1,000 units in year 1; 1,250 units in year 2; and 1,325 units in year 3. The project has a three-year life. Variable costs amount to $225 per unit and fixed costs are $100,000 per year. The project requires an initial investment of $165,000 in assets, which can be depreciated using bonus depreciation. The actual market value of these assets at the end of year 3 is expected to be $35,000. NWC requirements at the beginning of each year will be approximately 20 percent of the projected sales during the coming year. The tax rate is 21 percent and the required return on the project is 10 percent. What will the cash flows for this project be?
In: Accounting
Oak Mart, a producer of solid oak tables, reports the following
data from its second year of business.
| Sales price per unit | $ | 310 | per unit |
| Units produced this year | 105,000 | units | |
| Units sold this year | 108,500 | units | |
| Units in beginning-year inventory | 3,500 | units | |
| Beginning inventory costs | |||
| Variable (3,500 units × $130) | $ | 455,000 | |
| Fixed (3,500 units × $70) | 245,000 | ||
| Total | $ | 700,000 | |
| Manufacturing costs this year | |||
| Direct materials | $ | 40 | per unit |
| Direct labor | $ | 62 | per unit |
| Overhead costs this year | |||
| Variable overhead | $ | 3,200,000 | |
| Fixed overhead | $ | 7,400,000 | |
| Selling and administrative costs this year | |||
| Variable | $ | 1,450,000 | |
| Fixed | 4,400,000 | ||
Exercise 19-7 Part 1
1. Prepare the current-year income statement for the company using variable costing.
In: Accounting
John is looking at several options to fund his son’s 4-year university degree.
The university fees of $45,000 a year will have be paid starting 11 years from today. He is analysing an insurance plan that pays out $45,000 a year for 4 years with the first payout 11 years from today. The insurance plan has several payment options:
Option 1
Pay $60,000 today.
Option 2
Beginning 1 year from today, pay $12,000 a year for the next 8
years.
Option 3
Beginning 1 year from today, make payments each year for the next 8 years. The first payment is $11,000 and the amount increases by 5% each year.
Answer the following questions regarding the options above:
(a) Calculate the present value of each option. Use a 10% discount rate.
In: Finance
QUESTION 97
A company is considering the purchase of a new production line that it has estimated will generate the following annual cash flows: $5,710,498 per year for 8 years, followed by $7,672,287 per year for 2 years, followed by $3,519,326 per year for 15 years. All cash flows will be received at the end of the year. If the company's required rate of return is 12.4%, what is the maximum price at which the company will purchase this new line? State your answer to the nearest whole dollar.
QUESTION 98
Assume that you will receive $8,766 per year for 4 years, followed by $4,590 per year for 8 years, followed by $7,686 per year for 3 years. All cash flows are to be received at the end of the year. If the required rate of return is 14.9%, what is the present value of these cash flows? State your answer to the nearest whole dollar.
In: Finance
Chubbyville purchases a delivery van for $24,100. Chubbyville estimates a four-year service life and a residual value of $1,900. During the four-year period, the company expects to drive the van 104,000 miles. 1. Straight-line. 2. Double-declining-balance. (Round your depreciation rate to 2 decimal places. Round your final answers to the nearest whole dollar.) 3. Actual miles driven each year were 24,000 miles in Year 1; 32,000 miles in Year 2; 22,000 miles in Year 3; and 24,000 miles in Year 4. Note that actual total miles of 102,000 fall short of expectations by 2,000 miles. Calculate annual depreciation for the four-year life of the van using activity-based. (Round your depreciation rate to 2 decimal places. Round your final answers to the nearest whole dollar.)
In: Accounting
Data for Cash Flow Estimation for an Expansion Project
• Cost of new equipment: $200,000
• Life of the project: 5 years
• Depreciation for equipment: Straight-line to zero over five
years
• Investment (increase) in net working capital: $30,000
• Annual sales: $220,000
• Annual cash operating expenses: $90,000
• Income tax rate: 40%
• At the end of year five, the company will sell off the equipment
for $50,000.
• At the end of year five, the firm will recover the net working
capital investment of $30,000.
What is the total initial investment outlay in Year 0?
What is the depreciation amount in Year 1?
What is the operating income BEFORE taxes in Year 1?
What is the operating income AFTER taxes in Year 1?
What is the after-tax operating cash flow in Year 1?
What is the total terminal year after-tax non-operating cash flow?
In: Finance
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Comparing three depreciation methods Dexter Industries purchased packaging equipment on January 8 for $72,000. The equipment was expected to have a useful life of three years, or 14,400 operating hours, and a residual value of $3,600. The equipment was used for 5,760 hours during Year 1, 4,320 hours in Year 2, and 4,320 hours in Year 3. Required: 1. Determine the amount of depreciation expense for the three years ending December 31, by (a) the straight-line method, (b) the units-of-activity method, and (c) the double-declining-balance method. Also determine the total depreciation expense for the three years by each method. Round the final answers for each year to the nearest whole dollar.
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In: Accounting
Diebold Incorporated
Diebold Incorporated manufactures, markets, and services automated teller machines in the United States. The following are selected numbers from the financial statements for Year 1 and Year 2 (in millions):
Year 1 Year 2
Revenues $ 544.0 $ 620.0
Operating Expenses (465.1) (528.5)
Depreciation (12.5) (14.0)
= Earnings before Interest and Taxes 66.4 77.5
Interest Expenses 0.0 0.0
Taxes (25.3) (29.5)
= Net Income $ 41.1 $ 48.0
Working Capital $ 175.0 $ 240.0
The firm had capital expenditures of $15 million in Year 1 and $18 million in Year 2. The working capital in Year 0 was $180 million. In Year 3 and into the future, the firm expects $40 million in free cash flows. Its WACC is 7.5 percent and expected growth rate is 2.5 percent.
What is the market value of equity? Explain any assumptions.
In: Finance
Throughout the year, Johnson Inc. had the following shares outstanding. There were no shares issued or repurchased during the year.
Preferred shares, $3.00, unlimited number authorized,60,000 issued and outstanding $12,000,000
Common shares, unlimited number authorized, 420,000 issued and outstanding . 24,000,000
Total contributed capital $36,000,000
Net income for the year was $ 1,590,000.
Loss from discontinued operations (net of tax)of $-159,000was included in net income for the year.
Required:
Prepare the basic EPS presentation for the company assuming:
1.The preferred shares are non-cumulative, preferred dividends of $180,000were paid during the year.
2.The preferred shares are non-cumulative, and no dividends were paid during the year.
3.The preferred shares are cumulative, and no dividends were paid during the year.
4.The preferred shares are cumulative, and 2years of dividends and the current dividends were paid in the year.
In: Accounting