Question

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

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.

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 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. 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 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 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 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 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. 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. 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 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 projectâ€™s life.
What is the net present value of the project?
Select one:
a. $264670
b. $296434
c. $933215...

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