17. Project Evaluation. Ilana Industries Inc. needs a new lathe. It can buy a new high-speed lathe
for $1 million. The lathe will cost $35,000 per year to run, but it will save the firm $125,000 in
labor costs and will be useful for 10 years. Suppose that, for tax purposes, the lathe is entitled to
100% bonus depreciation. At the end of the 10 years, the lathe can be sold for $100,000. The
discount rate is 8%, and the corporate tax rate is 21%. What is the NPV of buying the new lathe?
(LO9-2)
In: Finance
New-Project Analysis
Madison Manufacturing is considering a new machine that costs $350,000 and would reduce pre-tax manufacturing costs by $110,000 annually. Madison would use the 3-year MACRS method to depreciate the machine, and management thinks the machine would have a value of $33,000 at the end of its 5-year operating life. The applicable depreciation rates are 33.33%, 44.45%, 14.81%, and 7.41%. Working capital would increase by $35,000 initially, but it would be recovered at the end of the project's 5-year life. Madison's marginal tax rate is 40%, and a 12% cost of capital is appropriate for the project.
Calculate the project's NPV, IRR, MIRR, and payback. Do not round intermediate calculations. Round the monetary value to the nearest dollar and percentage values and payback to two decimal places. Negative values, if any, should be indicated by a minus sign.
NPV: $
IRR: %
MIRR: %
The project's payback: years
Assume management is unsure about the $110,000 cost savings - this figure could deviate by as much as plus or minus 20%. Do not round intermediate calculations. Round your answer to the nearest dollar. Negative values, if any, should be indicated by a minus sign.
Calculate the NPV if cost savings value deviate by plus 20%.
$
Calculate the NPV if cost savings value deviate by minus 20%.
$
Suppose the CFO wants you to do a scenario analysis with different values for the cost savings, the machine's salvage value, and the working capital (WC) requirement. She asks you to use the following probabilities and values in the scenario analysis:
| Scenario | Probability | Cost Savings | Salvage Value | WC |
| Worst case | 0.35 | $ 88,000 | $28,000 | $40,000 |
| Base case | 0.35 | 110,000 | 33,000 | 35,000 |
| Best case | 0.30 | 132,000 | 38,000 | 30,000 |
Calculate the project's expected NPV, its standard deviation, and its coefficient of variation. Do not round intermediate calculations. Round the monetary values to the nearest dollar and a coefficient of variation to two decimal places. Negative values, if any, should be indicated by a minus sign.
The project's expected NPV: $
Standard deviation: $
Coefficient of variation:
In: Finance
New-Project Analysis
Madison Manufacturing is considering a new machine that costs $350,000 and would reduce pre-tax manufacturing costs by $110,000 annually. Madison would use the 3-year MACRS method to depreciate the machine, and management thinks the machine would have a value of $33,000 at the end of its 5-year operating life. The applicable depreciation rates are 33.33%, 44.45%, 14.81%, and 7.42%. Working capital would increase by $35,000 initially, but it would be recovered at the end of the project's 5-year life. Madison's marginal tax rate is 40%, and a 11% WACC is appropriate for the project. Enter negative answers with minus sign.
Scenario |
Probability |
Cost Savings |
Salvage Value |
WC |
| Worst case | 0.35 | $ 88,000 | $28,000 | $40,000 |
| Base case | 0.35 | 110,000 | 33,000 | 35,000 |
| Best case | 0.30 | 132,000 | 38,000 | 30,000 |
In: Finance
Do you think the new tax reform can make the rich richer?
Just pick one new tax rules and discuss it further.
In: Accounting
New-Project Analysis
Madison Manufacturing is considering a new machine that costs $350,000 and would reduce pre-tax manufacturing costs by $110,000 annually. Madison would use the 3-year MACRS method to depreciate the machine, and management thinks the machine would have a value of $33,000 at the end of its 5-year operating life. The applicable depreciation rates are 33.33%, 44.45%, 14.81%, and 7.41%. Working capital would increase by $35,000 initially, but it would be recovered at the end of the project's 5-year life. Madison's marginal tax rate is 25%, and a 10% cost of capital is appropriate for the project.
Calculate the project's NPV, IRR, MIRR, and payback. Do not round intermediate calculations. Round the monetary value to the nearest dollar and percentage values and payback to two decimal places. Negative values, if any, should be indicated by a minus sign.
NPV: $
IRR: %
MIRR: %
The project's payback: years
Assume management is unsure about the $110,000 cost savings - this figure could deviate by as much as plus or minus 20%. Do not round intermediate calculations. Round your answer to the nearest dollar. Negative values, if any, should be indicated by a minus sign.
Calculate the NPV if cost savings value deviate by plus 20%.
$
Calculate the NPV if cost savings value deviate by minus 20%.
$
Suppose the CFO wants you to do a scenario analysis with different values for the cost savings, the machine's salvage value, and the working capital (WC) requirement. She asks you to use the following probabilities and values in the scenario analysis:
| Scenario | Probability | Cost Savings | Salvage Value | WC |
| Worst case | 0.35 | $ 88,000 | $28,000 | $40,000 |
| Base case | 0.35 | 110,000 | 33,000 | 35,000 |
| Best case | 0.30 | 132,000 | 38,000 | 30,000 |
Calculate the project's expected NPV, its standard deviation, and its coefficient of variation. Do not round intermediate calculations. Round the monetary values to the nearest dollar and a coefficient of variation to two decimal places. Negative values, if any, should be indicated by a minus sign.
The project's expected NPV: $
Standard deviation: $
Coefficient of variation:
In: Finance
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In: Accounting
At a local manufacturing plant, employees must complete new machine set ups within 40 minutes. New machine set-up times can be described by a normal model with a mean of 27 minutes and a standard deviation of 5 minutes. a. What percent of new machine set ups take more than 35 minutes? b. The typical worker needs ten minutes to adjust to their surroundings before beginning their duties. What percent of new machine set ups are completed within 30 minutes to allow for this?
In: Statistics and Probability
New-Project Analysis
Madison Manufacturing is considering a new machine that costs $350,000 and would reduce pre-tax manufacturing costs by $110,000 annually. Madison would use the 3-year MACRS method to depreciate the machine, and management thinks the machine would have a value of $33,000 at the end of its 5-year operating life. The applicable depreciation rates are 33.33%, 44.45%, 14.81%, and 7.41%. Working capital would increase by $35,000 initially, but it would be recovered at the end of the project's 5-year life. Madison's marginal tax rate is 40%, and a 9% cost of capital is appropriate for the project.
Calculate the project's NPV, IRR, MIRR, and payback. Do not round intermediate calculations. Round the monetary value to the nearest dollar and percentage values and payback to two decimal places. Negative values, if any, should be indicated by a minus sign.
NPV: $
IRR: %
MIRR: %
The project's payback: years
Assume management is unsure about the $110,000 cost savings - this figure could deviate by as much as plus or minus 20%. Do not round intermediate calculations. Round your answer to the nearest dollar. Negative values, if any, should be indicated by a minus sign.
Calculate the NPV if cost savings value deviate by plus 20%.
$
Calculate the NPV if cost savings value deviate by minus 20%.
$
Suppose the CFO wants you to do a scenario analysis with different values for the cost savings, the machine's salvage value, and the working capital (WC) requirement. She asks you to use the following probabilities and values in the scenario analysis:
| Scenario | Probability | Cost Savings | Salvage Value | WC |
| Worst case | 0.30 | $ 88,000 | $28,000 | $40,000 |
| Base case | 0.40 | 110,000 | 33,000 | 35,000 |
| Best case | 0.30 | 132,000 | 38,000 | 30,000 |
Calculate the project's expected NPV, its standard deviation, and its coefficient of variation. Do not round intermediate calculations. Round the monetary values to the nearest dollar and a coefficient of variation to two decimal places. Negative values, if any, should be indicated by a minus sign.
The project's expected NPV: $
Standard deviation: $
Coefficient of variation:
In: Finance
|
New-Project Analysis Madison Manufacturing is considering a new machine that costs $350,000 and would reduce pre-tax manufacturing costs by $110,000 annually. Madison would use the 3-year MACRS method to depreciate the machine, and management thinks the machine would have a value of $33,000 at the end of its 5-year operating life. The applicable depreciation rates are 33.33%, 44.45%, 14.81%, and 7.42%. Working capital would increase by $35,000 initially, but it would be recovered at the end of the project's 5-year life. Madison's marginal tax rate is 40%, and a 13% WACC is appropriate for the project. Enter negative answers with minus sign.
|
In: Finance
Problem 18-01
Profit or Loss on New Stock Issue
Security Brokers Inc. specializes in underwriting new issues by small firms. On a recent offering of Beedles Inc., the terms were as follows:
| Price to public: | $5 per share |
| Number of shares: | 3 million |
| Proceeds to Beedles: | $14,000,000 |
The out-of-pocket expenses incurred by Security Brokers in the design and distribution of the issue were $370,000. What profit or loss would Security Brokers incur if the issue were sold to the public at the following average price?
In: Finance