Question

The following information pertains to an investment: Investment $140,000 Annual revenues $96,000 Annual variable costs $32,000...

The following information pertains to an investment:

Investment

$140,000

Annual revenues

$96,000

Annual variable costs

$32,000

Annual fixed out-of-pocket costs

$20,000

Discount rate

12%

Expected life of project

8 years

The present value of the annual cash flow (rounded) is

a.

$136,822.

b.

$218,592.

c.

$204,884.

d.

$152,538.

Homework Answers

Answer #1

The present value of the annual cash flow

Annual cash inflow = Annual revenues - Annual variable costs - Annual fixed out-of-pocket costs

= $96,000 - $32,000 - $20,000

= $44,000

Therefore, the present value of the annual cash flow = Annual cash flow x Present value annuity factor at 12% for 8 Years

= Annual cash flow x [PVIFA 12%, 8 Years]

= $44,000 x 4.968

= $218,592

“Hence, the present value of the annual cash flow will be $218,592”

NOTE

-The formula for calculating the Present Value Annuity Inflow Factor (PVIFA) is [{1 - (1 / (1 + r)n} / r], where “r” is the Discount Rate/Cost of capital and “n” is the number of years.

Know the answer?
Your Answer:

Post as a guest

Your Name:

What's your source?

Earn Coins

Coins can be redeemed for fabulous gifts.

Not the answer you're looking for?
Ask your own homework help question
Similar Questions
A project is expected to generate annual revenues of $124,100, with variable costs of $77,200, and...
A project is expected to generate annual revenues of $124,100, with variable costs of $77,200, and fixed costs of $17,700. The annual depreciation is $4,250 and the tax rate is 34 percent. What is the annual operating cash flow?
Consider a capital expenditure project that has forecasted revenues equal to $32,000 per year; cash expenses...
Consider a capital expenditure project that has forecasted revenues equal to $32,000 per year; cash expenses are estimated to be $29,000 per year. The cost of the project equipment is $23,000, and the equipment’s estimated salvage value at the end of the project is $9,000. The equipment’s $23,000 cost will be depreciated on a straight-line basis to $0 over a 10-year estimated economic life. Assume that the project requires an initial $7,000 working capital investment. The company’s marginal tax rate...
An investment that costs $32,000 will produce annual cash flows of $10,680 for a period of...
An investment that costs $32,000 will produce annual cash flows of $10,680 for a period of 4 years. Given a desired rate of return of 8%, what will the investment generate? Use Appendix Table 2. (Do not round your intermediate calculations. Round your answer to the nearest whole dollar.) A positive net present value of $35,374. A positive net present value of $3,374. A negative net present value of $3,374. A negative net present value of $35,374.
7. (CMA) Garfield Inc. is considering a 10-year capital investment project with forecasted cash revenues of...
7. (CMA) Garfield Inc. is considering a 10-year capital investment project with forecasted cash revenues of $40,000 per year and forecasted cash operating costs of $29,000 per year. The initial cost of the equipment for the project is $23,000, and Garfield expects to sell the equipment for $9,000 at the end of the tenth year. The equipment will be depreciated on a straight-line basis over seven years for tax purposes. The project requires a working capital investment of $7,000 at...
Calpine Company has the following information related to a new project: Initial investment: $980,000; Fixed costs:...
Calpine Company has the following information related to a new project: Initial investment: $980,000; Fixed costs: $230,000; Variable costs: $11.80 per unit; Selling price: $28.50 per unit; Discount rate: 14 percent; Project life: 8 years; Tax rate: 25 percent. Fixed assets are depreciated using straight-line depreciation over the project's life. What is the financial break-even point? 28,194 units 27,615 units 26,534 units 25,418 units 29,093 units
A project your firm is considering for implementation has these estimated costs and revenues: an investment...
A project your firm is considering for implementation has these estimated costs and revenues: an investment cost of $50,000; maintenance costs that start at $5,000 at the end of year (EOY) 1 and increase by $1,000 for each of the next 4 years, and then remain constant for the following 5 years; savings of $20,000 per year (EOY 1–10); and finally a resale value of $35,000 at the EOY 10. If the project has a 10-year life and the firm’s...
Bennett Co. has a potential new project that is expected to generate annual revenues of $263,900,...
Bennett Co. has a potential new project that is expected to generate annual revenues of $263,900, with variable costs of $144,800, and fixed costs of $61,900. To finance the new project, the company will need to issue new debt that will have an annual interest expense of $25,500. The annual depreciation is $25,600 and the tax rate is 40 percent. What is the annual operating cash flow?
Cardinal Company is considering a five-year project that would require a $2,855,000 investment in equipment with...
Cardinal Company is considering a five-year project that would require a $2,855,000 investment in equipment with a useful life of five years and no salvage value. The company’s discount rate is 14%. The project would provide net operating income in each of five years as follows: Sales $ 2,867,000 Variable expenses 1,125,000 Contribution margin 1,742,000 Fixed expenses: Advertising, salaries, and other fixed out-of-pocket costs $ 706,000 Depreciation 571,000 Total fixed expenses 1,277,000 Net operating income $ 465,000 Foundational 12-4 4....
Bennett Co. has a potential new project that is expected to generate annual revenues of $255,800,...
Bennett Co. has a potential new project that is expected to generate annual revenues of $255,800, with variable costs of $141,200, and fixed costs of $59,200. To finance the new project, the company will need to issue new debt that will have an annual interest expense of $21,000. The annual depreciation is $23,800 and the tax rate is 40 percent. What is the annual operating cash flow? $173,816 $124,120 $79,200 $42,760 $43,920
Tempura Inc. is considering two projects. Project A requires an investment of $50,000. Estimated annual receipts...
Tempura Inc. is considering two projects. Project A requires an investment of $50,000. Estimated annual receipts for 20 years are $20,000; estimated annual costs are $12,500. An alternative project, B, required an investment of $75,000, has annual receipts for 20 years of $28,000, and has annual costs of $18,000. Assume both projects have a zero salvage value and that MARR is 12%/year. Please show cash flow diagram and please don't use excel functions. Thank you! a. What is the present...