DeVault Services recently hired you as a consultant to help with its capital budgeting process. The company is considering a new project whose data are shown below. The equipment that would be used has a 3-year tax life, would be depreciated by the straight-line method over its 3-year life, and would have a zero salvage value. No new working capital would be required. Revenues and other operating costs are expected to be constant over the project's 3-year life. The risk-adjusted cost of capital is 0.103. What is the project's NPV? Risk-adjusted cost of capital 0.103 Net investment cost (depreciable basis) $100,693 Straight-line deprec. rate 33.3333% Sales revenues, each year $95,500 Operating costs (excl. deprec.), each year $43,000 Tax rate 27.0%

DeVault Services recently hired you as a consultant to help with its capital budgeting process. The company is considering a new project whose data are shown below. The equipment that would be used has a 3-year tax life, would be depreciated by the straight-line method over its 3-year life, and would have a zero salvage value. No new working capital would be required. Revenues and other operating costs are expected to be constant over the project's 3-year life. The risk-adjusted cost of capital is 0.103. What is the project's NPV? Risk-adjusted cost of capital 0.103 Net investment cost (depreciable basis) $100,693 Straight-line deprec. rate 33.3333% Sales revenues, each year $95,500 Operating costs (excl. deprec.), each year $43,000 Tax rate 27.0%

Cornerstones of Cost Management (Cornerstones Series)

4th Edition

ISBN:9781305970663

Author:Don R. Hansen, Maryanne M. Mowen

Publisher:Don R. Hansen, Maryanne M. Mowen

Chapter19: Capital Investment

Section: Chapter Questions

Problem 28P: Friedman Company is considering installing a new IT system. The cost of the new system is estimated...

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D. Services recently hired you as a consultant to help with its capital budgeting process. The company is considering a new project whose data are shown below. The equipment that would be used has a 3-year tax life, would be depreciated by the straight-line method over its 3-year life, and would have a zero-salvage value. No new working capital would be required. Revenues and other operating costs are expected to be constant over the project's 3-year life. What is the project's NPV? Risk-adjusted cost of capital 10.0% Net investment cost (depreciable basis) $65,000 Straight-line deprec. rate 33.3333% Sales revenues, each year $65,500 Operating costs (excl. deprec.), each year $25,000 Tax rate 35.0%
DeVault Services recently hired you as a consultant to help with its capital budgeting process. The company is considering a new project whose data are shown below. The equipment that would be used has a 3-year tax life, would be depreciated by the straight-line method over its 3-year life, and would have a $20,000 salvage value. $15,000 new working capital would be required at the start of the project. Revenues and other operating costs are expected to be constant over the project's 3-year life. What is the project's NPV? Risk-adjusted cost of capital 10.0% Net investment cost (depreciable basis) 100,000 Straight-line deprec. rate 33.3333% Sales revenues, each year $50,000 Operating costs (excl. deprec.), each year $15,000 Tax rate 40.0%
One of the methods to evaluate a project is by estimating the Net Present value of that particular project. In order to do so, the working capital is included in the capital budgeting analysis and it will be then recovered at the end of a project’s life. Consider the following scenarios. You will need to use the data provided to solve the question. Temple Corp. is considering a new project whose data are shown below. The equipment that would be used has a 3-year tax life, would be depreciated by the straight-line method over its 3-year life, and would have a zero salvage value. No new working capital would be required. Revenues and other operating costs are expected to be constant over the project's 3-year life. b) Estimate the Cash Flows from year 1 to year 3 for the proposed project.
One of the methods to evaluate a project is by estimating the Net Present value of that particular project. In order to do so, the working capital is included in the capital budgeting analysis and it will be then recovered at the end of a project’s life. Consider the following scenarios. You will need to use the data provided to solve the question. Temple Corp. is considering a new project whose data are shown below. The equipment that would be used has a 3-year tax life, would be depreciated by the straight-line method over its 3-year life, and would have a zero salvage value. No new working capital would be required. Revenues and other operating costs are expected to be constant over the project's 3-year life. a. Estimate the annual depreciation that the company needs to pay from year 1 to year 3.
Your new employer, Freeman Software, is considering a new project whose data are shown below. The equipment that would be used has a 3-year tax life, and the allowed depreciation rates for such property are 33.33%, 44.45%, 14.81%, and 7.41% for Years 1 through 4. Revenues and other operating costs are expected to be constant over the project's 10-year expected life. What is the Year 1 cash flow? Equipment cost (depreciable basis) $65,000 Sales revenues, each year $60,000 Operating costs (excl. deprec.) $25,000 Tax rate 25.0% a. $36,869 b. $31,849 c. $35,114 d. $31,666 e. $33,442
Majestic Theaters is considering investing in some new projection equipment whose data are shown below. The required equipment has a 7-year project life falling into a CCA class of 30%, but it would have a positive pre-tax salvage value at the end of Year 7. Also, some new working capital would be required, but it would be recovered at the end of the project's life. Revenues and cash operating costs are expected to be constant over the project's 7-year life. What is the project's NPV? WACC 12.0% Net capital investment in fixed assets $950,000 Required new working capital Sales revenues, each year Cash operating costs, each year $30,000 $580,000 $330,000 Expected salvage value (fixed assets) $50,000 Tax rate a. $13,965 b. $15,226 c. $16,920✓ d. $17,882 35.0%
Fitzgerald Computers is considering a new project whose data are shown below. The required equipment has a 4-year tax life, after which it will be worthless, and it will be depreciated by the straight-line method over 4 years. Revenues and other operating costs are expected to be constant over the project's 4-year life. What is the project's Year 1 cash flow? Equipment cost (depreciable basis) Straight-line depreciation rate Sales revenues, each year Operating costs (excl. deprec.) Tax rate a. $27,500 b. $28,438 c. $22,750 d. $30,333 e. $21,000 $65,000 25.00% $60,000 $25,000 40.0%
Glenora Inc. is considering the following project: The equipment has a 4-year project life. This equipment fall into class 43 with a CCA rate of 30% and would have zero salvage value. The firm has other assets in asset class 43. No new working capital would be required. Revenues and cash operating costs are expected to be constant over the project's 4-year life. What is the project's NPV? WACC Net investment cost Sales revenues, each year Cash operating costs Tax rate Oa. $16,284 O b. $23,401 O c. $28,499 d. $19,417 10.0% $65,000 $60,000 $25,000 35.0%
Garden-Grow Products is considering a new investment whose data are shown below. The equipment would be depreciated on a straight-line basis over the project's 3-year life, would have a zero salvage value, and would require some additional working capital that would be recovered at the end of the project's life. Revenues and other operating costs are expected to be constant over the project's life. What is the project's NPV? (Hint: Cash flows are constant in Years 1 to 3.) Project cost of capital (r) Net investment in fixed assets (basis) Required new working capital Straight-line deprec. rate Sales revenues, each year Operating costs (excl. deprec.), each year Tax rate a. $31,573 b. $30,069 c. $36,550 d. $34,809 e. $33,152 10.0% $75,000 $15,000 33.333% $75,000 $25,000 25.0%
ABC company is considering a new investment whose data are shown below for which you need to estimate the cash flows. The equipment asset would be depreciated on a straight-line basis over the project's 3-year life, would have a salvage value 1000 at the end of the 3 yrs project. ABC company would require some additional working capital that would be recovered at the end of the project's life. Revenues and other operating costs are expected to be constant over the project's life. a) Estimate the Cash Flows and find the NPV and IRR of the project b) Find the sensitivity of NPV with respect to the WACC for +30% and -30% devaition from the base value of 10%
Fool Proof Software is considering a new project whose data are shown below. The equipment that would be used has a 3-year tax life. Under the new tax law, the equipment used in the project is eligible for 100% bonus depreciation, so it will be fully depreciated at t = 0. Revenues and operating costs are expected to be constant over the project's 10-year expected life. What is the Year 0 cash outlay? Equipment cost $42,188 Sales revenues, each year $90,000 Operating costs (excl. depr.) $25,000 Tax rate 25.0% Group of answer choices $31,641 $25,804 $26,419 $48,750 $24,576
Harrison Company is considering taking on a project that requires an initial cost of $180,000. The project has a lifespan of two (2) years, after which after two years the project has no salvage value. The possible incremental after-tax cash flows and their probabilities can be seen in the following table. The required return by the company for this investment is 8%. Questions :a). The expected net present value of this projectb). If it is possible to abandon (abandonment) this project and the abandonment value at the end of the first year is $90,000 after tax. For this project, is abandonment of this project after one year is the right choice? Calculate the expected net present value, assuming that the company would abandon the project if it were useful. Compare with the calculations in the answer to part (a). What are the implications if you are a financial manager?