ABC Corporation has hired you to evaluate a new FOUR year project for the firm. The project will require thepurchase of a $846,100.00 work cell. Further, it will cost the firm $53,000.00 to get the work cell delivered andinstalled. The work cell will be straight-line depreciated to zero with a 20-year useful life. The project will requirenew employees to be trained at a cost of $72,000.00. The project will also use a piece of equipment the firmalready owns. The equipment has been fully depreciated, but has a market value of $6,500.00. Finally, the firm willinvest $12,000.00 in net working capital to ensure the project has sufficient resources to be successful.The project will generate annual sales of $914,000.00 with expenses estimated at 40.00% of sales. Net workingcapital will be held constant throughout the project. The tax rate is 39.00%.The work cell is estimated to have a market value of $492,000.00 at the end of the fourth year. The firm expects toreclaim 80.00% of the final NWC position.The cost of capital is 10.00%.What is the NPV the project if we end the project after 4 years?

NPV is also known as Net Present Value.. It is a capital budgeting technique which helps in decision…

Answered: ABC Corporation has hired you to…

EBK CONTEMPORARY FINANCIAL MANAGEMENT

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter11: Capital Budgeting And Risk

Section: Chapter Questions

Problem 15P

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Caduceus Company is considering the purchase of a new piece of factory equipment that will cost $565,000 and will generate $135,000 per year for 5 years. Calculate the IRR for this piece of equipment. For further instructions on internal rate of return In Excel, see Appendix C.
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ABC Corporation has hired you to evaluate a new FOUR year project for the firm. The project will require the purchase of a $803,600.00 work cell. Further, it will cost the firm $57,900.00 to get the work cell delivered and installed. The work cell will be straight-line depreciated to zero with a 20-year useful life. The project will require new employees to be trained at a cost of $65,200.00. The project will also use a piece of equipment the firm already owns. The equipment has been fully depreciated, but has a market value of $5,000.00. Finally, the firm will invest $10,700.00 in net working capital to ensure the project has sufficient resources to be successful. The project will generate annual sales of $919,000.00 with expenses estimated at 39.00% of sales. Net working capital will be held constant throughout the project. The tax rate is 40.00%. The work cell is estimated to have a market value of $450,000.00 at the end of the fourth year. The firm expects to reclaim 83.00% of the…
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Raph Inc. needs someone to supply it with 1,000,000 planks of wood per year to support its manufacturing needs over the next six years, and your company has decided to bid on the contract. It will cost your firm $5,000,000 to install the equipment necessary to start production. The equipment will be depreciated using the straight-line method to 0 over the project's life. The salvage value of the equipment is expected to be 0. Your fixed costs will be $2,000,000 annually, and your variable production costs are $14 per plank. You also need an initial investment in net working capital of $ 2,000,000, which will be recovered at the end of the project. The firm has a tax rate of 21%, and the required rate of return is 10%. Calculate the bid price. (Round to 3 decimals)
Raph Inc. needs someone to supply it with 1,000,000 planks of wood per year to support its manufacturing needs over the next six years, and your company has decided to bid on the contract. It will cost your firm $5,000,000 to install the equipment necessary to start production. The equipment will be depreciated using the straight-line method to 0 over the project's life. The salvage value of the equipment is expected to be 0. Your fixed costs will be $2,000,000 annually, and your variable production costs are $14 per plank. You also need an initial investment in net working capital of $2,000,000, which will be recovered at the end of the project. The firm has a tax rate of 21%, and the required rate of return is 10%. Calculate the bid price. (Round to 3 decimals) Calculate the OCF for year 1, based on the Bid price. (Round to 2 decimals)

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