Kk.216. STM Inc. is considering a 3-year project with an initial cost of $825,590. The project will not directlyproduce sales but will reduce operating costs by $299,174 a year. The equipment is depreciatedstraight-line to a zero book value over the life of the project. At the end of the project, theequipment will be sold for an estimated $70,892. The tax rate is 34%. The project will require$29,612 in extra inventory for spare parts and accessories. STM requires a 8% rate of return.What is the NPV of the project?Round your response to the nearest dollar and input without the $ sign.

NPV is the net present value which is main fundament capital budgeting technique that is used most…

Answered: STM Inc. is considering a 3-year…

EBK CONTEMPORARY FINANCIAL MANAGEMENT

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter9: Capital Budgeting And Cash Flow Analysis

Section: Chapter Questions

Problem 4P

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Dauten is offered a replacement machine which has a cost of 8,000, an estimated useful life of 6 years, and an estimated salvage value of 800. The replacement machine is eligible for 100% bonus depreciation at the time of purchase- The replacement machine would permit an output expansion, so sales would rise by 1,000 per year; even so, the new machines much greater efficiency would cause operating expenses to decline by 1,500 per year The new machine would require that inventories be increased by 2,000, but accounts payable would simultaneously increase by 500. Dautens marginal federal-plus-state tax rate is 25%, and its WACC is 11%. Should it replace the old machine?
The Rodriguez Company is considering an average-risk investment in a mineral water spring project that has an initial after-tax cost of 170,000. The project will produce 1,000 cases of mineral water per year indefinitely, starting at Year 1. The Year-1 sales price will be 138 per case, and the Year-1 cost per case will be 105. The firm is taxed at a rate of 25%. Both prices and costs are expected to rise after Year 1 at a rate of 6% per year due to inflation. The firm uses only equity, and it has a cost of capital of 15%. Assume that cash flows consist only of after-tax profits because the spring has an indefinite life and will not be depreciated. a. What is the present value of future cash flows? (Hint: The project is a growing perpetuity, so you must use the constant growth formula to find its NPV.) What is the NPV? b. Suppose that the company had forgotten to include future inflation. What would they have incorrectly calculated as the projects NPV?
Gateway Communications is considering a project with an initial fixed assets cost of $1.47 million that will be depreciated straight-line to a zero book value over the 9-year life of the project. At the end of the project the equipment will be sold for an estimated $248,000. The project will not change sales but will reduce operating costs by $415,000 per year. The tax rate is 21 percent and the required return is 12.3 percent. The project will require $56,000 in net working capital, which will be recouped when the project ends. What is the project's NPV? Multiple Choice O $256,094 $584,027 $193,231 $238,300 $247,833
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Gateway Communications is considering a project with an initial fixed assets cost of $1.49 million that will be depreciated straight-line to a zero book value over the 9-year life of the project. At the end of the project the equipment will be sold for an estimated $246,000. The project will not change sales but will reduce operating costs by $411,000 per year. The tax rate is 21 percent and the required return is 12.1 percent. The project will require $55,000 in net working capital, which will be recouped when the project ends. What is the project's NPV? Mutiple Choice $566.919 $255.003 $329631 5318.997
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Pulaski Starlight Inc. is evaluating a project. The project is expected to generated new sales of $1,718,798 and incur costs of $606,990 annually. The project will be depreciated using the MACRS approach. The equipment needed for the project will cost $4,495,137 and is considered to be a five year MACRS class. The company's tax rate is 28%. Given this information, what would be the project's third year operating cash flow? Answer in dollars and cents.
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