Question

The Biological Insect Control Corporation (BICC) has hired you
as a consultant to evaluate the NPV of its proposed toad ranch.
BICC plans to breed toads and sell them as ecologically desirable
insect control mechanisms. They anticipate that the business will
continue into perpetuity. Following the negligible start-up costs,
BICC expects the following nominal cash flows at the end of the
year:

Revenues | $ | 280,000 | |

Labor costs | 200,000 | ||

Other costs | 70,000 | ||

The company will lease machinery for $105,000 per year. The lease
payments start at the end of Year 1 and are expressed in nominal
terms. Revenues will increase by 5 percent per year in real terms.
Labor costs will increase by 4 percent per year in real terms.
Other costs will increase by 2 percent per year in real terms. The
rate of inflation is expected to be 7 percent per year. The
required rate of return is 12 percent in real terms. The company
has a 38 percent tax rate. All cash flows occur at year-end.

What is the NPV of the proposed toad ranch today?

Answer #1

The Biological Insect Control Corporation (BICC) has hired you
as a consultant to evaluate the NPV of its proposed toad ranch. The
company plans to breed toads and sell them as ecologically
desirable insect control mechanisms. They anticipate that the
business will continue into perpetuity. Following the negligible
start-up costs, the company expects the following nominal cash
flows at the end of the year:
Revenues
$
490,000
Labor costs
239,000
Other costs
88,000
The company will lease machinery...

1) MathSoc has hired you to evaluate the NPV of its proposed new
pizza restaurant. It is expected that the business will last in
perpetuity. MathSoc expects to invest $1,250,000 in order to open
the site. Beginning the end of year 1, the associated annual cash
flows (expressed in nominal terms) are expected to be:
Revenue $185,000 Labour Costs 88,000 Other Costs 33,000
The company will rent space in M3 for $35,000. The rental
payments start at the end of...

You are assessing the viability of operating an amusement park.
The nominal revenues from ticket sales at the end of Year 1 will be
$554176. They will increase by 4% per year in real terms. The only
annual cost will be to lease the whole operation for $118845 per
year. The leasing costs are nominal and will start at the end of
Year 1. They will stay fixed in nominal terms.
Assume the inflation rate is 5% and the real...

You are assessing the viability of operating an amusement park.
The nominal revenues from ticket sales at the end of Year 1 will be
$493649. They will increase by 4% per year in real terms. The only
annual cost will be to lease the whole operation for $181856 per
year. The leasing costs are nominal and will start at the end of
Year 1. They will stay fixed in nominal terms.
Assume the inflation rate is 5% and the real...

You are assessing the viability of operating an amusement park.
The nominal revenues from ticket sales at the end of Year 1 will be
$632372. They will increase by 4% per year in real terms. The only
annual cost will be to lease the whole operation for $159902 per
year. The leasing costs are nominal and will start at the end of
Year 1. They will stay fixed in nominal terms. Assume the inflation
rate is 5% and the real...

Amazing Manufacturing, Inc., has been considering the purchase
of a new manufacturing facility for $590,000. The facility is to be
fully depreciated on a straight-line basis over seven years. It is
expected to have no resale value at that time. Operating revenues
from the facility are expected to be $435,000, in nominal terms, at
the end of the first year. The revenues are expected to increase at
the inflation rate of 4 percent. Production costs at the end of the...

Mustang Enterprises, Inc., has been considering the purchase of
a new manufacturing facility for $280,000. The facility is to be
fully depreciated on a straight-line basis over seven years. It is
expected to have no resale value after the seven years. Operating
revenues from the facility are expected to be $115,000, in nominal
terms, at the end of the first year. The revenues are expected to
increase at the inflation rate of 2 percent. Production costs at
the end of...

Mustang Enterprises, Inc., has been considering the purchase of
a new manufacturing facility for $277,000. The facility is to be
fully depreciated on a straight-line basis over seven years. It is
expected to have no resale value after the seven years. Operating
revenues from the facility are expected to be $112,000, in nominal
terms, at the end of the first year. The revenues are expected to
increase at the inflation rate of 3 percent. Production costs at
the end of...

Your boss asks you to evaluate a project requiring an initial
investment of $3,000 and having an infinite life. Revenues and
costs occur at the end of the year. At the end of the first year,
nominal revenues and nominal costs are projected to be $1,000 and
$500, respectively. There is no depreciation, and the tax rate is
30%. The real required rate of return is 10%, and the inflation
rate is 4%. Nominal revenues and costs will increase at...

Mustang Enterprises, Inc., has been considering the purchase of
a new manufacturing facility for $277,000. The facility is to be
fully depreciated on a straight-line basis over seven years. It is
expected to have no resale value after the seven years. Operating
revenues from the facility are expected to be $112,000, in nominal
terms, at the end of the first year. The revenues are expected to
increase at the inflation rate of 3 percent. Production costs at
the end of...

ADVERTISEMENT

Get Answers For Free

Most questions answered within 1 hours.

ADVERTISEMENT

asked 21 minutes ago

asked 37 minutes ago

asked 39 minutes ago

asked 42 minutes ago

asked 2 hours ago

asked 2 hours ago

asked 2 hours ago

asked 2 hours ago

asked 2 hours ago

asked 2 hours ago

asked 3 hours ago

asked 3 hours ago