1.You are working on a bid to build THREE city parks a year for the next three years. This lingdrequires the purchase of $180.000 of equipment that will be depreciated using straight- ot sepreciation to a zero book value over the three-vear proiect life. The equipment can be sold at the end of the project for $115.000, You will also need to invest($18,000 in net working capital for the duration of the project. The fixed costs will be $37,000 a year and the variable Costs will be $148,000 per park. Your required rate of return is 14 percent and your tax rate is 21 percent. *Please show your detailed work so that the minimal amount you should bid per park is $177,649.25 Do not round during intermediate steps. Make sure your work shows the answers to the following questions. What is the depreciation every year? 1. 2. What is the after-tax salvage value of the equipment at the end of the project? 3. What is the change in net working capital at the beginning and the end of the project? 4. What is the cash flow from assets (CFFA) at each time point? |2 5. What is the estimated operating cash flow (OCF) the project must generate to make NPV equal to 0? 1 6. Assume you submit the minimum price at which you are willing to build the parks and your bid is accepted. a. The NPV of the project is b. The IRR of the project is c. The P.I. of the project is d. You financially break even by producing city parks.
1.You are working on a bid to build THREE city parks a year for the next three years. This lingdrequires the purchase of $180.000 of equipment that will be depreciated using straight- ot sepreciation to a zero book value over the three-vear proiect life. The equipment can be sold at the end of the project for $115.000, You will also need to invest($18,000 in net working capital for the duration of the project. The fixed costs will be $37,000 a year and the variable Costs will be $148,000 per park. Your required rate of return is 14 percent and your tax rate is 21 percent. *Please show your detailed work so that the minimal amount you should bid per park is $177,649.25 Do not round during intermediate steps. Make sure your work shows the answers to the following questions. What is the depreciation every year? 1. 2. What is the after-tax salvage value of the equipment at the end of the project? 3. What is the change in net working capital at the beginning and the end of the project? 4. What is the cash flow from assets (CFFA) at each time point? |2 5. What is the estimated operating cash flow (OCF) the project must generate to make NPV equal to 0? 1 6. Assume you submit the minimum price at which you are willing to build the parks and your bid is accepted. a. The NPV of the project is b. The IRR of the project is c. The P.I. of the project is d. You financially break even by producing city parks.
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 18E
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Transcribed Image Text:1.You are working on a bid to build THREE city parks a year for the next three years. This
lingdrequires the purchase of $180.000 of equipment that will be depreciated using straight-
ot sepreciation to a zero book value over the three-vear proiect life. The equipment can be sold
at the end of the project for $115.000, You will also need to invest($18,000 in net working
capital for the duration of the project. The fixed costs will be $37,000 a year and the variable
Costs will be $148,000 per park. Your required rate of return is 14 percent and your tax rate is 21
percent.
*Please show your detailed work so that the minimal amount you should bid per park is
$177,649.25
Do not round during intermediate steps.
Make sure your work shows the answers to the following questions.
What is the depreciation every year?
1.
2.
What is the after-tax salvage value of the equipment at the end of the project?
3.
What is the change in net working capital at the beginning and the end of the project?
4.
What is the cash flow from assets (CFFA) at each time point? |2
5.
What is the estimated operating cash flow (OCF) the project must generate to make NPV equal to 0? 1
6.
Assume you submit the minimum price at which you are willing to build the parks and your bid is
accepted.
a. The NPV of the project is
b. The IRR of the project is
c. The P.I. of the project is
d. You financially break even by producing
city parks.
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