Question

Consider a capital expenditure project that has forecasted revenues equal to $32,000 per year; cash expenses are estimated to be $29,000 per year. The cost of the project equipment is $23,000, and the equipment’s estimated salvage value at the end of the project is $9,000. The equipment’s $23,000 cost will be depreciated on a straight-line basis to $0 over a 10-year estimated economic life. Assume that the project requires an initial $7,000 working capital investment. The company’s marginal tax rate is 30%.

**Calculate the project’s net present value using a 12%
discount rate.**

Hint:

Net initial investment = ??

Net cash flow for year 1 ~ 9 = ??

Net cash flow for year 10 = ??

Net present value for the project = ??

Answer #1

7. (CMA) Garfield Inc. is considering a 10-year capital
investment project with forecasted cash revenues of $40,000 per
year and forecasted cash operating costs of $29,000 per year. The
initial cost of the equipment for the project is $23,000, and
Garfield expects to sell the equipment for $9,000 at the end of the
tenth year. The equipment will be depreciated on a straight-line
basis over seven years for tax purposes. The project requires a
working capital investment of $7,000 at...

BAM Co. is evaluating a project requiring a capital expenditure
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Year
Net Income
Net Cash Flow
1
$ 75,000
$285,000
2
102,000
290,000
3
109,500
190,000
4
36,000
125,000
$322,500
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follows:
Year Net Income Net Cash Flow
1 $90,000 $210,000
2 $80,000 $200,000
3 $60,000 $160,000
4 $30,000 $150,000
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. (NPV,IRR)A company can invest $1,600,000 in a capital
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Year Cash flow
1 $500,000
2 720,000
3 300,000
4 600,000
The company has a 13% cost of capital.
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c. Should the firm accept or reject the project?
d. What is the value added to the firm if it accepts this
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A firm is considering a four year capital project which is
expected to have net cash inflows of $20,000, $15,000, $13,000 and
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weighted average cost of capital is 20%. What is the net present
value of the project?
a
$15,500
b
-$5,300
c
$4,417
d
$23,000
B.
If the firm is considers a five year capital project which...

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A project has the following cash
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Project
Year Cash
Flow
0 -$3,233
1 1,000
2 1,000
3 1,000
4 1,000
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A rm is considering an investment project with the following
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Initial capital expenditure $36 million
Annual sales (in units) 2 million units
Selling price per unit $20
Cost per unit $10
Project life 3 years Depreciation Straight line, over the life
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Working capital Initially (Year 0) the project requires an
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recovered after the project's life (Year 3).
Tax rate 20%
WACC 15%
(a) What...

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