Question

- Your company is considering a new project, and you have the following information:

- Two years ago, the company paid $1,000,000 for the land and building that will house the project. The property could be sold for $3,000,000 today. Its book value is the purchase price.
- One year ago, the firm spent $100,000 on initial marketing for the project.
- The project requires the purchase of a machine (in year 0) for
$500,000. The machine will be fully depreciated straight-line in
years 1-5
**.** - The project will generate sales of $800,000 per year and expenses of $550,000 per year for years 1-5.
- The firm will pay $15,000 in interest on debt that will be used to fund the project.
- In year 1, the firm must increase its inventory by $25,000. It will maintain the new level of inventory through year 5.
- The marginal tax rate is 35%.

- In your NPV calculation, what cash flow should you use for year 0?
- In your NPV calculation, what cash flow should you use for year 1?

**Finding WACC:**A firm has $10 billion in debt, $40 billion in equity, and a tax rate of 35%. The pre-tax cost of debt and equity are 6% and 10%, respectively. What discount rate should it use for a typical project?

Answer #1

(Calculating project cash flows and NPV) Raymobile Motors is
considering the purchase of a new production machine for $550,000.
The purchase of this machine will result in an increase in earnings
before interest and taxes of $180,000 per year. To operate this
machine properly, workers would have to go through a brief
training session that would cost $23,000 after tax. In addition,
it would cost $6,000 after tax to install this machine correctly.
Also, because this machine is extremely...

New-Project Analysis
The president of the company you work for has asked you to
evaluate the proposed acquisition of a new chromatograph for the
firm’s R&D department. The equipment's basic price is $73,000,
and it would cost another $18,500 to modify it for special use by
your firm. The chromatograph, which falls into the MACRS 3-year
class, would be sold after 3 years for $29,500. The MACRS rates for
the first 3 years are 0.3333, 0.4445 and 0.1481. Use of...

New-Project Analysis
The president of the company you work for has asked you to
evaluate the proposed acquisition of a new chromatograph for the
firm’s R&D department. The equipment's basic price is $73,000,
and it would cost another $15,000 to modify it for special use by
your firm. The chromatograph, which falls into the MACRS 3-year
class, would be sold after 3 years for $31,800. The MACRS rates for
the first 3 years are 0.3333, 0.4445 and 0.1481. Use of...

Nike's management team is considering two projects, a golf club
project and a helmet project.
A. Using the table below, calculate firm’s weighted average cost
of capital:
Nike:
% of debt in capital structure 25%
% of equity in capital structure 75%
Before-tax required cost of debt 6%
Tax rate 30%
Cost of equity 11%
B. Capital Budgeting
Project information:
Golf club project Helmet project
Upfront costs (10,000,000) (8,000,000)
Annual cash flows Year 1 $0 $3,000,000
Year 2 $0 $3,000,000...

(Calculating project cash flows and?
NPV)???Garcia's Truckin', Inc. is considering the purchase
of a new production machine for $200,000.The purchase of this
machine will result in an increase in earnings before interest and
taxes of $50,000 per year. To operate this machine? properly,
workers would have to go through a brief training session that
would cost$5,000
after tax. In? addition, it would cost 5,000 after tax to
install this machine correctly. ? Also, because this machine is
extremely? efficient, its...

Your company is considering a project, with an initial outlay of
$60M and 8 years of cash flows of $15M starting in year 1. The
project is scale expanding, meaning it has the same level of risk
as your firm. On average, your firm’s stock return
increases 12% when the market return increases 10%. T-bills yield
4% and the market portfolio offers an expected return of 13%. Your
firm finances 35% of its assets with debt that yield of 9%....

One year ago, your company purchased a machine used in
manufacturing for $110,000. You have learned that a new machine is
available that offers many advantages and that you can purchase it
for $150,000 today. The CCA rate applicable to both machines is
20%; neither machine will have any long-term salvage value. You
expect that the new machine will produce earnings before interest,
taxes, depreciation, and amortization (EBITDA) of $40,000 per
year for the next 10 years. The current machine...

A firm is considering a project with the following
information:
Project will require purchase of a machine for $103,750.00 that
is MACRS depreciable over a five-year schedule. (no depreciation
until end of year 1).
Project will require immediate non-depreciable expenses of
$29,227.00 TODAY (year 0).
Project will have the following projected balance sheet values
of NWC:
YEAR
0
1
2
NWC Level
$4,000
8.00% of sales
9.00% of sales
Sales for the project will be $47,014.00 per year, with all...

You have been asked by the president of your company to evaluate
the proposed acquisition of a new tractor using excel. (all
calculations must be shown) • The tractor’s basic price is $50,000,
and it will cost another $9,000 to modify it for special use by
your firm. • The tractor falls into the MACRS five-year class
{MACRS rates as percentages: 20, 32, 19, 12, 11, 6}, and will be
sold after two years for $35,000. • Use of the...

One year? ago, your company purchased a machine used in
manufacturing for $100,000. You have learned that a new machine is
available that offers many advantages and you can purchase it for
$150,000 today. It will be depreciated on a? straight-line basis
over 10 years and has no salvage value. You expect that the new
machine will produce a gross margin? (revenues minus operating
expenses other than? depreciation) of $45,000 per year for the next
10 years. The current machine...

ADVERTISEMENT

Get Answers For Free

Most questions answered within 1 hours.

ADVERTISEMENT

asked 28 seconds ago

asked 1 minute ago

asked 14 minutes ago

asked 33 minutes ago

asked 37 minutes ago

asked 46 minutes ago

asked 46 minutes ago

asked 52 minutes ago

asked 52 minutes ago

asked 1 hour ago

asked 1 hour ago

asked 1 hour ago