Question

Herjavec Enterprises is thinking about introducing a new surface cleaning machine. The marketing department has come up with the estimate that the company can sell 16 units per year at $304,000 net cash flow per unit for the next four years. The engineering department has come up with the estimate that developing the machine will take a $14.8 million initial investment. The finance department has estimated that a discount rate of 12 percent should be used.

a.What is the base-case NPV? (A negative answer should be indicated by a minus sign. Do not round intermediate calculations and enter your answer in dollars, not millions of dollars, rounded to 2 decimal places, e.g., 1,234,567.89.)

b.If unsuccessful, after the first year, the project can be dismantled and will have an aftertax salvage value of $10.9 million. Also, after the first year expected cash flows will be revised up to 21 units per year or down to 0 units with equal probability. What is the revised NPV? (Do not round intermediate calculations and enter your answer in dollars, not millions of dollars, rounded to 2 decimal places, e.g., 1,234,567.89.)

Answer #1

After year 1, the Project is dismantled, so there no cashflow after that

Herjavec Enterprises is thinking about introducing a new surface
cleaning machine. The marketing department has come up with the
estimate that the company can sell 16 units per year at $304,000
net cash flow per unit for the next four years. The engineering
department has come up with the estimate that developing the
machine will take a $14.8 million initial investment. The finance
department has estimated that a discount rate of 12 percent should
be used.
a.What is the base-case...

Herjavec Enterprises is thinking about introducing a new surface
cleaning machine. The marketing department has come up with the
estimate that the company can sell 16 units per year at $304,000
net cash flow per unit for the next four years. The engineering
department has come up with the estimate that developing the
machine will take a $14.8 million initial investment. The finance
department has estimated that a discount rate of 12 percent should
be used.
THIRD TIME POSTING (b)...

Herjavec Enterprises is thinking about introducing a new surface
cleaning machine. The marketing department has come up with the
estimate that the company can sell 16 units per year at $301,000
net cash flow per unit for the next four years. The engineering
department has come up with the estimate that developing the
machine will take a $14.4 million initial investment. The finance
department has estimated that a discount rate of 13 percent should
be used.
a.
What is the...

Applied Nanotech is thinking about introducing a new surface
cleaning machine. The marketing department has come up with the
estimate that Applied Nanotech can sell 15 units per year at
$314,000 net cash flow per unit for the next five years. The
engineering department has come up with the estimate that
developing the machine will take a $15.8 million initial
investment. The finance department has estimated that a discount
rate of 15 percent should be used.
a.
What is the...

Applied Nanotech is thinking about introducing a new surface
cleaning machine. The marketing department has come up with the
estimate that Applied Nanotech can sell 14 units per year at
$302,000 net cash flow per unit for the next four years. The
engineering department has come up with the estimate that
developing the machine will take a $13.5 million initial
investment. The finance department has estimated that a discount
rate of 10 percent should be used.
a.
What is the...

M.V.P. Games, Inc., has hired you to perform a feasibility study
of a new video game that requires an initial investment of $7.6
million. The company expects a total annual operating cash flow of
$1.36 million for the next 10 years. The relevant discount rate is
10 percent. Cash flows occur at year-end.
a.
What is the NPV of the new video game? (Do not round
intermediate calculations and enter your answer in dollars, not
millions of dollars, rounded to...

A firm is considering an investment in a new machine with a
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machine has a book value of $5.8 million and a market value of $4.5
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Quad Enterprises is considering a new three-year expansion
project that requires an initial fixed asset investment of $2.32
million. The fixed asset falls into the three-year MACRS class
(MACRS schedule). The project is estimated to generate $1.735
million in annual sales, with costs of $650,000. The project
requires an initial investment in net working capital of $250,000,
and the fixed asset will have a market value of $180,000 at the end
of the project. The tax rate is 21 percent....

9,
Quad Enterprises is considering a new three-year expansion
project that requires an initial fixed asset investment of $2.32
million. The fixed asset qualifies for 100 percent bonus
depreciation in the first year. The project is estimated to
generate $1.735 million in annual sales, with costs of $650,000.
The project requires an initial investment in net working capital
of $250,000, and the fixed asset will have a market value of
$180,000 at the end of the project. The tax rate...

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