Question

PADICO is considering an investment project. The project requires an initial $5 million outlay for equipment...

PADICO is considering an investment project. The project requires an initial $5 million outlay for equipment and machinery. Sales are projected to be $2.5 million per year for the next four years. The equipment will be fully depreciated straight-line by the end of year 4. The cost of goods sold and operating expenses (not including depreciation) are predicted to be 30% of sales. The equipment can be sold for $500,000 at the end of year 4.Padico also needs to add net working capital of $100,000 immediately. The networking capital will be recovered in full at the end of the fourth year. .Assume the tax rate is 40% and the cost of capital is 12% A-what is the initial investment B-what is the OCF C-what is the terminal value ?D-What is the NPV of this investment I NEED TO SEE EACH STEP SOLUTION WRITING THE ANSWER ONLY IS CONSIDERED WRONG
Business   Finance   
0 0
Add a commentTranscribed image text
Next >

Homework Answers

Answer #1

Please check the below image. The explanation is provided in coloum A. All numbers are in million.

Note: Depreciation needs to be added back to find the operating cash flow.

0 0
Know the answer?
Your Answer:

Post as a guest

Your Name:

What's your source?

Earn Coins

Coins can be redeemed for fabulous gifts.

Log In

Sign Up

Not the answer you're looking for?
Ask your own homework help question
Similar Questions
PADICO is considering an investment project. The project requires an initial $5 million outlay for equipment...
PADICO is considering an investment project. The project requires an initial $5 million outlay for equipment and machinery. Sales are projected to be $2.5 million per year for the next four years. The equipment will be fully depreciated straight-line by the end of year 4. The cost of goods sold and operating expenses (not including depreciation) are predicted to be 30% of sales. The equipment can be sold for $500,000 at the end of year 4.Padico also needs to add...
PADICO is considering an investment project. The project requires an initial $5 million outlay for equipment...
PADICO is considering an investment project. The project requires an initial $5 million outlay for equipment and machinery. Sales are projected to be $2.5 million per year for the next four years. The equipment will be fully depreciated straight-line by the end of year 4. The cost of goods sold and operating expenses (not including depreciation) are predicted to be 30% of sales. The equipment can be sold for $500,000 at the end of year 4.Padico also needs to add...
PDQ Corporation is considering an investment proposal that requires an initial investment of $100,000 in equipment....
PDQ Corporation is considering an investment proposal that requires an initial investment of $100,000 in equipment. Fully depreciated existing equipment may be disposed of for $30,000 pre-tax. The proposed project will have a five-year life, and is expected to produce additional revenue of $45,000 per year. Expenses other than depreciation will be $12,000 per year. The new equipment will be depreciated to zero over the five-year useful life, but it is expected to actually be sold for $25,000. PDQ has...
A project requires an initial investment in equipment and machinery of $10 million. The equipment is...
A project requires an initial investment in equipment and machinery of $10 million. The equipment is expected to have a five-year lifetime with no salvage value and will be depreciated on a straight-line basis. The project is expected to generate revenues of $5.1 million each year for the five years and have operating expenses (not including depreciation) amounting to one-third of revenues. Assume the tax rate is 40% and the cost of capital is 10%. What is the net present...
A company is considering a 6-year project that requires an initial outlay of $18,000. The project...
A company is considering a 6-year project that requires an initial outlay of $18,000. The project engineer has estimated that the operating cash flows will be $4,000 in year 1, $7,000 in year 2, $7,000 in year 3, $7,000 in year 4, $7,000 in year 5, and $7,000 in year 6. At the end of the project, the equipment will be fully depreciated, classified as 5-year property under MACRS. The project engineer believes the equipment can be sold for $5,000...
A project requires an initial investment in equipment and machinery of $10 million. The equipment is...
A project requires an initial investment in equipment and machinery of $10 million. The equipment is expected to have a 5-year lifetime with no salvage value and will be depreciated on a straight-line basis. The project is expected to generate revenues of $5.1 million each year for the 5 years and have operating expenses (not including depreciation) amounting to 1/3 of revenues. The tax rate is 40%. What is the net cash flow in year 1? 3.40M 0.84M 2.04M 2.84M
A company is considering a 6-year project that requires an initial outlay of $24,000. The project...
A company is considering a 6-year project that requires an initial outlay of $24,000. The project engineer has estimated that the operating cash flows will be $4,000 in year 1, $6,000 in year 2, $7,000 in year 3, $7,000 in year 4, $7,000 in year 5, and $9,000 in year 6. At the end of the project, the equipment will be fully depreciated, classified as 5-year property under MACRS. The project engineer believes the equipment can be sold for $5,000...
The project requires an initial investment of $300,000 on equipment and is depreciated over 6 years....
The project requires an initial investment of $300,000 on equipment and is depreciated over 6 years. Working capital increased $18,000 at the beginning of the project and will be recovered in full at the end of year 4. The equipment will be sold at its book value at the end of year 4. The tax rate is 40%. 1 2 3 4 Revenues $120,000 $140,000 $160,000 $180,000 Cost of Goods Sold $  36,000 $  42,000 $  48,000 $  54,000 Depreciation $  80,000 $  60,000 $  40,000 $  20,000...
You are considering a 10-year project: An initial investment (today) in equipment of $900,000 is required....
You are considering a 10-year project: An initial investment (today) in equipment of $900,000 is required. There will be no salvage value for this equipment after 10 years. The equipment is depreciated using the straight-line method, $90,000/year for 10 years. Annual expected revenues are $700,000/year for 10 years (beginning 1 year from today). Annual expected operating expenses are $250,000/year for 10 years (beginning 1 year from today). This $250,000 does not include depreciation. The tax rate is 35%. An investment...
A company invests in a new project that requires an initial capital outlay of $835087. The...
A company invests in a new project that requires an initial capital outlay of $835087. The project will generate annual net cash flows of $196478 over a period of 9 years. The after-tax cost of capital is 10%. In addition, a working capital outlay of $55156 will be required. This working capital outlay will be recovered at the end of the project’s life. What is the net present value of the project? Select one: a. $264670 b. $296434 c. $933215...
ADVERTISEMENT
Need Online Homework Help?

Get Answers For Free
Most questions answered within 1 hours.

Ask a Question
ADVERTISEMENT