A1 QUESTION 13The Bruin's Den Outdoor Gear is considering a new 6-year project to produce a new tent line. The equipmentnecessary would cost $1.29 million and be depreciated using straight-line depreciation to a book value of zero. At theend of the project, the equipment can be sold for 15 percent of its initial cost. The company believes that it can sell23,500 tents per year at a price of $64 and variable costs of $25 per tent. The fixed costs will be $395,000 per year.The project will require an initial investment in net working capital of $193,000 that will be recovered at the end of theproject. The required rate of return is 10.7 percent and the tax rate is 35 percent. What is the NPV?

NPV that is net present value is main capital budgeting technique used and is based on time value of…

Answered: QUESTION 13 The Bruin's Den Outdoor…

EBK CFIN

6th Edition

ISBN:9781337671743

Author:BESLEY

Publisher:BESLEY

Chapter10: Project Cash Flows And Risk

Section: Chapter Questions

Problem 13PROB

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Austins cell phone manufacturer wants to upgrade their product mix to encompass an exciting new feature on their cell phone. This would require a new high-tech machine. You are excited about his new project and are recommending the purchase to your board of directors. Here is the information you have compiled in order to complete this recommendation: According to the information, the project will last 10 years and require an initial investment of $800,000, depreciated with straight-line over the life of the project until the final value is zero. The firms tax rate is 30% and the required rate of return is 12%. You believe that the variable cost and sales volume may be as much as 10% higher or lower than the initial estimate. Your boss understands the risks but asks you to explain the alternatives in a brief memo to the board, Write a memo to the Board of Directors objectively weighing out the pros and cons of this project and make your recommendation(s).
Average rate of returncost savings Maui Fabricators Inc. is considering an investment in equipment that will replace direct labor. The equipment has a cost of 125,000 with a 15,000 residual value and an eight-year life. The equipment will replace one employee who has an average wage of 28,000 per year. In addition, the equipment will have operating and energy costs of 5,150 per year. Determine the average rate of return on the equipment, giving effect to straight-line depreciation on the investment.
Give typing answer with explanation and conclusion The Bruin's Den Outdoor Gear is considering a new 6-year project to produce a new tent line. The equipment necessary would cost $1.29 million and be depreciated using straight-line depreciation to a book value of zero. At the end of the project, the equipment can be sold for 15 percent of its initial cost. The company believes that it can sell 23,500 tents per year at a price of $64 and variable costs of $25 per tent. The fixed costs will be $395,000 per year. The project will require an initial investment in net working capital of $193,000 that will be recovered at the end of the project. The required rate of return is 10.7 percent and the tax rate is 21 percent. What is the NPV? a) $848,697 b) $655,697 c) $572,631 d) $743,822 e) $677,778
15 UPS is considering the purchase of a electric truck that would cost $150,000 and would last for 5 years. At the end of 5 years, the truck would have a salvage value of $20,000. By reducing labor and other operating costs, the machine would provide annual cost savings of $45,000. The company requires a minimum return of 19% on all investment projects. The net present value of the proposed project is closest to (Ignore income taxes.): PV factor of $1 annuity for 5 years at 19% is 3.058 and PV of $1 over 5 years is 0.419 A. $85,000 B. -$12,390 C. -$4,010 D. $145,990
hat is the new NPV? 14. Project Evaluation Kolby's Korndogs is looking at a new sausage system with an installed cost of $655,000. This cost will be depreciated straight- line to zero over the project's five-year life, at the end of which the sausage system can be scrapped for $85,000. The sausage system will save the firm $183,000 per year in pretax operating costs, and the system requires an initial investment in net working capital of $35,000. If the tax rate is 22 percent and the discount rate is 8 percent, what is the NPV of this project? LO 2 qunnore the fixed
QUESTION 2 You are considering starting new factory producing small electric heaters. Each unit will sell at a price of $55. The production cost of each heater is $35. You are expecting to sell 9000 units per year. This project has an economic life of 6 years. The project requires an investment of $700000 in plants and equipment. This equipment will be depreciated to zero salvage value based on 5-year MACRS schedule. The depreciation rates from year 1 to 6 are 20 % ,32 %, 19.2 %, 11.52 %, 11.52 %, and 5.76 percent, respectively. The required rate of return for the project is 12 percent, the working capital requirement is 10 percent of the next year's sales revenue. The company will sell its old equipment for $100,000. The old machine is fully depreciated. The marginal corporate tax rate is 20 percent. At the termination of the project, the plant and equipment will be sold for an estimated value of $50000. Based on these assumptions, estimate the working capital requirements for the…
6 Cardinal Company is considering a project that would require a $2,805,000 investment in equipment with a useful life of five years. At the end of five years, the project would terminate and the equipment would be sold for its salvage value of $400,000. The company's discount rate is 14%. The project would provide net operating income each year as follows: Sales Variable expenses Contribution margin Fixed expenses: Advertising, salaries, and other fixed out-of-pocket costs Depreciation Total fixed expenses Net operating income. $ 642,000 481,000 Present value $2,741,000 1,125,000 1,616,000 1,123,000 $ 493,000 Click here to view Exhibit 10-1 and Exhibit 10-2, to determine the appropriate discount factor(s) using tables. Required: What is the present value of the project's annual net cash inflows? (Round discount factor(s) to 3 decimal places and final answer to the nearest dollar amount.)
i will 10 upvotes urgent Your firm needs a computerized machine tool lathe which costs $56,000 and requires $12,600 in maintenance for each year of its 3-year life. After three years, this machine will be replaced. The machine falls into the MACRS 3-year class life category. Assume a tax rate of 35 percent and a discount rate of 12 percent. Calculate the depreciation tax shield for this project in year 3.
5 Dog Up! Franks is looking at a new sausage system with an installed cost of $904,800. This cost will be depreciated straight-line to zero over the project's 3-year life, at the end of which the sausage system can be scrapped for $139,200. The sausage system will save the firm $278,400 per year in pretax operating costs, and the system requires an initial investment in net working capital of $64,960. If the tax rate is 24 percent and the discount rate is 11 percent, what is the NPV of this project?
Commodity Copper is considering the installation of a $1,764,000 production conveyor system that would generate the following labor cost savings over its 10-year life: Years Annual Labor Cost Savings 1–2 $280,000 3–5 340,000 6–8 288,800 9–10 260,000 a. The system will have no salvage at the end of its 10-year life, and the company uses a discount rate of 12 percent. What is the pre-tax net present value of this potential investment?Note: Round your final answer to the nearest whole dollar.
QUESTION 3 You are considering starting a new factory producing small electric heaters. Each unit will sell at a price of $55. The production cost of each heater is $35. You are expecting to sell 9000 units per year. This project has an economic life of 6 years. The project requires an investment of $700000 in plants and equipment. This equipment will be depreciated to zero salvage value based on 5-year MACRS schedule. The depreciation rates from year 1 to 6 are 20 % ,32 %, 19.2 %, 11.52 %, 11.52 %, and 5.76 percent, respectively. The company will sell its old equipment for $100,000. The old machine is fully depreciated. The required rate of return for the project is 12 percent, the working capital requirement is 10 percent of the next year's sales revenue. The marginal corporate tax rate is 20 percent. At the termination of the project, the plant and equipment will be sold for an estimated value of $50000. Based on these assumptions, estimate the cash flow for capital expenditures.…
Exercise 5 Dog Up! Franks is looking at a new sausage system with an installed cost of $445,000. This cost will be depreciated straight-line to zero over the project's five-year life, at the end of which the sausage system can be scrapped for $53,000. The sausage system will save the firm $139,000 per year in pretax operating costs, and the system requires an initial investment in net working capital of $25,000. If the tax rate is 23 percent and the discount rate is 11 percent, what is the NPV of this project? Answer

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