Essentials Of Investments
11th Edition
ISBN: 9781260013924
Author: Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher: Mcgraw-hill Education,
expand_more
expand_more
format_list_bulleted
Related questions
Question
Assume you have been hired to evaluate an investment required by EPA for a waste managment system for a nearby hog operation. The system will cost $350,000 and will last 30 years but only
| Item | Pre-Tax Flow | After-Tax Flow | Years | Discount Rate | PV Factor | |
| Waste System | -350,000 | -$350,000 | 0 | 0.0825 | 1.00 | |
| Depr Shield | 1-10 | 0.0825 | ||||
| Terminal Value | 30 | 0.0825 | ||||
| Maintenance Cost | 1-30 | 0.0825 | ||||
| NPV | ||||||
| NPC | ||||||
Using the information in the previous question regarding the $350,000 investment, what is the capital recovery factor? Round your answer to two places to the right of the decimal.
What is the annualized capital recovery cost in the pre-tax terms for this $300,000 investment?
Once again using the $350,000 investment, finalize the NPV and annual budget for this problem in the space below.
All answers should be rounded to two places to the right of the decimal.
Hint: The first blank in the capital line is the NPV from the first part of this table.
Once again using the $300,000 investment, finalize the NPV and annual budget for this problem in the space below.
All answers should be rounded to two places to the right of the decimal.
Hint: The first blank in the capital line is the NPV from the first part of this table.
| Item | Pre-Tax Amount | After-Tax Amount | Time | Discount Rate | PV Factor | Present Value | Annual After Tax | Annual Pre Tax |
| Revenue | 1-30 | 0.0825 | ||||||
| Feed | 1-30 | 0.0825 | ||||||
| Captial | 0.0825 | |||||||
| NPV |
Based on your calculations in the past few problems regarding the $350,000 investment, how would you describe the investment opportunity? Profitable or unprofitable
Expert Solution
This question has been solved!
Explore an expertly crafted, step-by-step solution for a thorough understanding of key concepts.
This is a popular solution
Trending nowThis is a popular solution!
Step by stepSolved in 3 steps with 3 images
Knowledge Booster
Learn more about
Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, finance and related others by exploring similar questions and additional content below.Similar questions
- Commercial Hydronics is considering replacing one of its larger control devices. A new unit sells for $27,000 (delivered). An additional $4,000 will be needed to install the device. The new device has an estimated 17-year service life. The estimated salvage value at the end of 17 years will be $2,000. The new control device will be depreciated as a 7-year MACRS asset. The existing control device (original cost = $20,000) has been in use for 11 years, and it has been fully depreciated (that is, its book value equals zero). Its scrap value is estimated to be $2,000. The existing device could be used indefinitely, assuming the firm is willing to pay for its very high maintenance costs. The firm's marginal tax rate is 40 percent. The new control device requires lower maintenance costs and frees up personnel who normally would have to monitor the system. Estimated annual cash savings from the new device will be $10,000. The firm's cost of capital is 12 percent.Evaluate the relative merits…arrow_forwardTassie Ltd is considering replacing an old management system with a new one. Use the following information to determine the feasibility of this replacement plan and explain your decision in detail. Costs of new system: $80,000 Costs of old system: $95,000 Depreciations of new system: Prime cost to zero Depreciations of old system: $5,000 per year Life of old system: will be written off in 5 years if no replacement Life of new system: 5 years Salvage value of new system at the end of its life: $18,000 Salvage value of old system at the end of its life: $0 Market value of the old system now: $55,000 Total savings from the new system:…arrow_forwardChadron Sports is considering adding a miniature golf course to its facility. The course would cost $138,000, would be depreciated on a straight-line basis over its five-year life, and would have a zero salvage value. The estimated income from the golfing fees would be $72,000 a year with $24,000 of that amount being variable cost. The fixed cost would be $11,600. In addition, the firm anticipates an additional $14,000 in revenue from its existing facilities if the golf course is added. The project will require $7,000 of net working capital, which is recoverable at the end of the project. What is the net present value of this project at a discount rate of 12 percent and a tax rate of 34 percent? O $14,438.78 $12,708.48 O $11,757.49 O $10,631.16 O $14,900.41arrow_forward
- Peyton Manufacturing is trying to decide between two different conveyor belt systems. System A costs $260,000, has a four-year life, and requires $80,000 in pretax annual operating costs. System B costs $366,000, has a six-year life, and requires $74,000 in pretax annual operating costs. Both systems are to be depreciated straight-line to zero over their lives and will have zero salvage value. Whichever system is chosen, it will not be replaced when it wears out. The tax rate is 25 percent and the discount rate is 9 percent. Calculate the NPV for both conveyor belt systems. (A negative answer should be indicated by a minus sign. Do not round intermediate calculations and round your answers to 2 decimal places, e.g.. 32.16.) System A System B Which conveyor belt system should the firm choose? O System A O System B 4arrow_forwardRust Industrial Systems is trying to decide between two different conveyor belt systems. System A costs $276,000, has a four-year life, and requires $84,000 in pretax annual operating costs. System B costs $390,000, has a six-year life, and requires $78,000 in pretax annual operating costs. Both systems are to be depreciated straight-line to zero over their lives and will have zero salvage value. Suppose the company always needs a conveyor belt system; when one wears out, it must be replaced. Assume the tax rate is 24 percent and the discount rate is 8 percent. Calculate the EAC for both conveyor belt systems. Note: Your answers should be negative values and indicated by minus signs. Do not round intermediate calculations and round your answers to 2 decimal places, e.g., 32.16. System A System B Which conveyor belt system should the firm choose? System A System Barrow_forwardAn oil refinery finds that it is necessary to treat the waste liquids from a new process before discharging them into a stream. The treatment will cost $30,000 the first year, but process improvements will allow the costs alternative, an outside company will process the wastes for the fixed price of $15,000/year throughout the 15 year period, payable at the beginning of each year. Either way, there is no need to treat the wastes after 15 years. Use the annual worth method to determine how the wastes should be processed. The company's MARR is 12%. decline by $3,000 each year. As an Click the icon to view the interest and annuity table for discrete compounding when the MARR is 12% per year. The AW of the in-house treatment is S (Round to the nearest dollar) The AW of the outside treatment is S (Round to the nearest dollar.) The processing is the most economical alternativearrow_forward
- Alliance Manufacturing Company is considering the purchase of a new automated drill press to replace an older one. The machine now in operation has a book value of zero and a salvage value of zero. However, it is in good working condition with an expected life of 10 additional years. The new drill press is more efficient than the existing one and, if installed, will provide an estimated cost savings (in labor, materials, and maintenance) of $6,000 per year. The new machine costs $25,000 delivered and installed. It has an estimated useful life of 10 years and a salvage value of $1,000 at the end of this period. The firm’s cost of capital is 14 percent, and its marginal income tax rate is 40 percent. The firm uses the straight-line depreciation method.a. What is the net cash flow in year 0 (i.e., initial outlay)?b. What are the net cash flows after taxes in each of the next 10 years?c. What is the NPV of the investment?d. Should Alliance replace its existing drill press?arrow_forwardSarasota Bottling Corporation is considering the purchase of a new bottling machine. The machine would cost $450,000 and has an estimated useful life of 8 years with zero salvage value. Management estimates that the new bottling machine will provide net annual cash flows of $78,750. Management also believes that the new bottling machine will save the company money because it is expected to be more reliable than other machines, and thus will reduce downtime. Click here to view PV tables. How much would the reduction in downtime have to be worth in order for the project to be acceptable? Sarasota's discount rate is 10%. (Use the above table.) (Round factor values to 5 decimal places, e.g. 1.25124 and final answer to O decimal places, e.g. 5,275.) Reduction in downtime would have to have a present value $arrow_forward7) costs for the current machine. The current machine is based on older technology and has negligible market value. The purchase price of the new equipment is $500,000 and it is expected to last for 10 years. Its terminal salvage value is $50,000. Operating and maintenance (O&M) costs are estimated to be $20,000 for the first year. Thereafter, these O&M costs are expected to increase by $2,000 each year over the previous year's costs. MARR is 10% per year compounded annually. a) b) purchase this new equipment? Explain. EmKay, Inc. has decided to purchase new equipment because of the increasing maintenance Compute the present worth for this new equipment purchase. If the annual O&M costs for the current machine are $75,000, would you support the decision toarrow_forward
- Tempura, Inc., is considering two projects. Project A requires an investment of $48,000. Estimated annual receipts for 20 years are $19.000; estimated annual costs are $12,500. An alternative project, B, requires an investment of $77,000, has annual receipts for 20 years of $23,000, and has annual costs of $18,000. Assume both projects have a zero salvage value and that MARR is 11.0 %/year. Click here to access the TVM Factor Table Calculator Part a What is the present worth of each project? Project A. $ Project B: $arrow_forwardA utility company is considering adding a second feedwater heater to its existing system unit to increase the efficiency of the system and thereby reduce fuel costs. The 150-MW unit will cost $1,650,000 and has a service life of 25 years. The expected salvage value of the unit is considered negligible. With the second unit installed, the efficiency of the system will improve from 55% to 56%. The fuel cost to run the feedwater is estimated at $0.05 kWh. The system unit will have a load factor of 85%, meaning that the system will run 85% of the year. Determine the equivalent annual worth of adding the second unit with an interest rate of 12%. Oa) $1,603,098 b) $12,573,321 Oc) $1,813,473 d) None of thesearrow_forwardRust Industrial Systems Company is trying to decide between two different conveyor belt systems. System A costs $350,000, has a 4-year life, and requires $141,000 in pretax annual operating costs. System B costs $430,000, has a 6-year life, and requires $135,000 in pretax annual operating costs. Both systems are to be depreciated straight- line to zero over their lives and will have zero salvage value. Whichever project is chosen, it will not be replaced when it wears out. The tax rate is 22 percent and the discount rate is 8 percent. Calculate the NPV for both conveyor belt systems. (A negative answer should be indicated by a minus sign. Do not round intermediate calculations and round your answers to 2 decimal places, e.g., 32.16.) System A System B Which conveyor belt system should the firm choose? ○ System B O System Aarrow_forward
arrow_back_ios
SEE MORE QUESTIONS
arrow_forward_ios
Recommended textbooks for you
- Essentials Of InvestmentsFinanceISBN:9781260013924Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.Publisher:Mcgraw-hill Education,
Foundations Of FinanceFinanceISBN:9780134897264Author:KEOWN, Arthur J., Martin, John D., PETTY, J. WilliamPublisher:Pearson,
Fundamentals of Financial Management (MindTap Cou...FinanceISBN:9781337395250Author:Eugene F. Brigham, Joel F. HoustonPublisher:Cengage Learning
Corporate Finance (The Mcgraw-hill/Irwin Series i...FinanceISBN:9780077861759Author:Stephen A. Ross Franco Modigliani Professor of Financial Economics Professor, Randolph W Westerfield Robert R. Dockson Deans Chair in Bus. Admin., Jeffrey Jaffe, Bradford D Jordan ProfessorPublisher:McGraw-Hill Education
Essentials Of Investments
Finance
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Mcgraw-hill Education,
Foundations Of Finance
Finance
ISBN:9780134897264
Author:KEOWN, Arthur J., Martin, John D., PETTY, J. William
Publisher:Pearson,
Fundamentals of Financial Management (MindTap Cou...
Finance
ISBN:9781337395250
Author:Eugene F. Brigham, Joel F. Houston
Publisher:Cengage Learning
Corporate Finance (The Mcgraw-hill/Irwin Series i...
Finance
ISBN:9780077861759
Author:Stephen A. Ross Franco Modigliani Professor of Financial Economics Professor, Randolph W Westerfield Robert R. Dockson Deans Chair in Bus. Admin., Jeffrey Jaffe, Bradford D Jordan Professor
Publisher:McGraw-Hill Education