Question

Steamboat Springs Furniture, Inc., is considering purchasing a new finishing lathe that costs $58,421.00. The lathe will generate revenues of $98,740.00 per year for five years. The cost of materials and labor needed to generate these revenues will total $50,013.00 per year, and other cash expenses will be $10,432.00 per year. The machine is expected to sell for $8,674.00 at the end of its five-year life and will be depreciated on a straight-line basis over five years to zero. Steamboat Springs' marginal tax rate is 37.00 percent, and its cost of capital is 13.00 percent.

What is the NPV of the project?

Answer #1

Steamboat Springs Furniture, Inc., is considering purchasing a
new finishing lathe that costs $61,793.00. The lathe will generate
revenues of $99,910.00 per year for five years. The cost of
materials and labor needed to generate these revenues will total
$48,957.00 per year, and other cash expenses will be $10,944.00 per
year. The machine is expected to sell for $8,130.00 at the end of
its five-year life and will be depreciated on a straight-line basis
over five years to zero. Steamboat...

Steamboat Springs Furniture, Inc., is considering purchasing a
new finishing lathe that costs $64,262.00. The lathe will generate
revenues of $96,152.00 per year for five years. The cost of
materials and labor needed to generate these revenues will total
$48,052.00 per year, and other cash expenses will be $10,462.00 per
year. The machine is expected to sell for $9,573.00 at the end of
its five-year life and will be depreciated on a straight-line basis
over five years to zero. Steamboat...

Steamboat Springs Furniture, Inc., is considering purchasing a
new finishing lathe that costs $61,475.00. The lathe will generate
revenues of $99,653.00 per year for five years. The cost of
materials and labor needed to generate these revenues will total
$50,876.00 per year, and other cash expenses will be $11,734.00 per
year. The machine is expected to sell for $8,467.00 at the end of
its five-year life and will be depreciated on a straight-line basis
over five years to zero. Steamboat...

Steamboat Springs Furniture, Inc., is considering purchasing a
new finishing lathe that costs $64,262.00. The lathe will generate
revenues of $96,152.00 per year for five years. The cost of
materials and labor needed to generate these revenues will total
$48,052.00 per year, and other cash expenses will be $10,462.00 per
year. The machine is expected to sell for $9,573.00 at the end of
its five-year life and will be depreciated on a straight-line basis
over five years to zero. Steamboat...

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expenses will be $10,000 per year. The machine is expected to sell
for $1,400 at the end of its five-year life and will be depreciated
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expenses will be $10,000 per year. The machine is expected to sell
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expected to sell for $3,500 at the end of its five-year life and
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zero. Rocky...

Rocky Mountain Lumber, Inc., is considering purchasing a new
wood saw that costs $65,000. The saw will generate revenues of
$100,000 per year for five years. The cost of materials and labor
needed to generate these revenues will total $60,000 per year, and
other cash expenses will be $10,000 per year. The machine is
expected to sell for $4,000 at the end of its five-year life and
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Orange Ltd. is considering purchasing a new manufacturing plant
that costs $500,000. The manufacturing plant will generate revenues
of $150,000 per year for ten years. The operating costs needed to
generate these revenues will total $75,000 per year. The
manufacturing plant will be depreciated on a straight-line basis
over ten years to zero. Orange Ltd.’s tax rate is 30 percent, and
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(a) What is the net present value of this
project?
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Ella Inc. is considering purchasing a new milling machine. The
new machine costs $298,586, plus installation fees of $11,693 and
will generate revenue of $3,990,261 per year and cost of good sold
of $1,001,512 over its 5-year life. The machine will be depreciated
on a straight-line basis over its 5-year life to an estimated
salvage value of 0. Mystic’s marginal tax rate is 0%. Mystic will
require $33,230 in NWC if the machine is purchased. Determine the
annual operating cash...

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