A firm wishes to bid on a contract that is expected to yield the following after-tax net cash flows at the end of each year: Year Net Cash Flow 1 $12,000 2 7,000 3 3,000 4 5,000 5 10,000 6 9,000 7 3,000 8 -$500 To secure the contract, the firm must spend $50,000 to retool its plant. This retooling will have no salvage value at the end of the 8 years. Comparable investment alternatives are available to the firm that earn 10 percent compounded annually. The depreciation tax benefit from the retooling is reflected in the net cash flows in the table. Use Table II to answer the questions. Compute the project's net present value. Round your answer to the nearest dollar. NPV: $ Should the project be adopted? The project be adopted. What is the meaning of the computed net present value figure? Round your answer to the nearest dollar. The value of the firm, and therefore the shareholders’ wealth, is by $ as a result of undertaking the project.
A firm wishes to bid on a contract that is expected to yield the following after-tax net cash flows at the end of each year: Year Net Cash Flow 1 $12,000 2 7,000 3 3,000 4 5,000 5 10,000 6 9,000 7 3,000 8 -$500 To secure the contract, the firm must spend $50,000 to retool its plant. This retooling will have no salvage value at the end of the 8 years. Comparable investment alternatives are available to the firm that earn 10 percent compounded annually. The depreciation tax benefit from the retooling is reflected in the net cash flows in the table. Use Table II to answer the questions. Compute the project's net present value. Round your answer to the nearest dollar. NPV: $ Should the project be adopted? The project be adopted. What is the meaning of the computed net present value figure? Round your answer to the nearest dollar. The value of the firm, and therefore the shareholders’ wealth, is by $ as a result of undertaking the project.
Chapter10: Capital Budgeting: Decision Criteria And Real Option
Section: Chapter Questions
Problem 2P
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Question
A firm wishes to bid on a contract that is expected to yield the following after-tax net cash flows at the end of each year:
| Year | Net Cash Flow | ||
| 1 | $12,000 | ||
| 2 | 7,000 | ||
| 3 | 3,000 | ||
| 4 | 5,000 | ||
| 5 | 10,000 | ||
| 6 | 9,000 | ||
| 7 | 3,000 | ||
| 8 | -$500 |
To secure the contract, the firm must spend $50,000 to retool its plant. This retooling will have no salvage value at the end of the 8 years. Comparable investment alternatives are available to the firm that earn 10 percent compounded annually. The
Use Table II to answer the questions.
- Compute the project's
net present value . Round your answer to the nearest dollar.NPV: $
-
Should the project be adopted?
The project be adopted.
-
What is the meaning of the computed net present value figure? Round your answer to the nearest dollar.
The value of the firm, and therefore the shareholders’ wealth, is by $ as a result of undertaking the project.
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