Beaver, a city in the United States, is attempting to attract a professional soccer team. Beaver is planning to build a new stadium that will cost $360 million. The annual upkeep is expected to amount to $730,000. The turf will have to be replaced every 9 years at a cost of $940,000. Painting every 6 years will cost $94,000. If the city expects to maintain the facility indefinitely, what is the estimated capitalized cost at i= 7% per year? The estimated capitalized cost is $ [

Beaver, a city in the United States, is attempting to attract a professional soccer team. Beaver is planning to build a new stadium that will cost $360 million. The annual upkeep is expected to amount to $730,000. The turf will have to be replaced every 9 years at a cost of $940,000. Painting every 6 years will cost $94,000. If the city expects to maintain the facility indefinitely, what is the estimated capitalized cost at i= 7% per year? The estimated capitalized cost is $ [

Financial Management: Theory & Practice

16th Edition

ISBN:9781337909730

Author:Brigham

Publisher:Brigham

Chapter11: Cash Flow Estimation And Risk Analysis

Section: Chapter Questions

Problem 1P: Talbot Industries is considering launching a new product. The new manufacturing equipment will cost...

See similar textbooks

Similar questions

Friedman Company is considering installing a new IT system. The cost of the new system is estimated to be 2,250,000, but it would produce after-tax savings of 450,000 per year in labor costs. The estimated life of the new system is 10 years, with no salvage value expected. Intrigued by the possibility of saving 450,000 per year and having a more reliable information system, the president of Friedman has asked for an analysis of the projects economic viability. All capital projects are required to earn at least the firms cost of capital, which is 12 percent. Required: 1. Calculate the projects internal rate of return. Should the company acquire the new IT system? 2. Suppose that savings are less than claimed. Calculate the minimum annual cash savings that must be realized for the project to earn a rate equal to the firms cost of capital. Comment on the safety margin that exists, if any. 3. Suppose that the life of the IT system is overestimated by two years. Repeat Requirements 1 and 2 under this assumption. Comment on the usefulness of this information.
Talbot Industries is considering launching a new product. The new manufacturing equipment will cost $17 million, and production and sales will require an initial $5 million investment in net operating working capital. The company’s tax rate is 25%. What is the initial investment outlay? The company spent and expensed $150,000 on research related to the new product last year. What is the initial investment outlay? Rather than build a new manufacturing facility, the company plans to install the equipment in a building it owns but is not now using. The building could be sold for $1.5 million after taxes and real estate commissions. What is the initial investment outlay?
Talbot Industries is considering launching a new product. The new manufacturing equipment will cost 17 million, and production and sales will require an initial 5 million investment in net operating working capital. The companys tax rate is 40%. a. What is the initial investment outlay? b. The company spent and expensed 150,000 on research related to the new product last year. Would this change your answer? Explain. c. Rather than build a new manufacturing facility, the company plans to install the equipment in a building it owns but is not now using. The building could be sold for 1.5 million after taxes and real estate commissions. How would this affect your answer?
Gina Ripley, president of Dearing Company, is considering the purchase of a computer-aided manufacturing system. The annual net cash benefits and savings associated with the system are described as follows: The system will cost 9,000,000 and last 10 years. The companys cost of capital is 12 percent. Required: 1. Calculate the payback period for the system. Assume that the company has a policy of only accepting projects with a payback of five years or less. Would the system be acquired? 2. Calculate the NPV and IRR for the project. Should the system be purchasedeven if it does not meet the payback criterion? 3. The project manager reviewed the projected cash flows and pointed out that two items had been missed. First, the system would have a salvage value, net of any tax effects, of 1,000,000 at the end of 10 years. Second, the increased quality and delivery performance would allow the company to increase its market share by 20 percent. This would produce an additional annual net benefit of 300,000. Recalculate the payback period, NPV, and IRR given this new information. (For the IRR computation, initially ignore salvage value.) Does the decision change? Suppose that the salvage value is only half what is projected. Does this make a difference in the outcome? Does salvage value have any real bearing on the companys decision?
Beaver, a city in the United States, is attempting to attract a professional soccer team. Beaver is planning to build a new stadium that will cost $340 million. The annual upkeep is expected to amount to $850,000. The turf will have to be replaced every 11 years at a cost of $980,000. Painting every 6 years will cost $82,000. If the city expects to maintain the facility indefinitely, what is the estimated capitalized cost at i = 8% per year? The estimated capitalized cost is $.......
Beaver, a city in the United States, is attempting to attract a professional soccer team. Beaver is planning to build a new stadium that will cost $250 million. Annual upkeep is expected to amount to $800,000. The turf will have to be replaced every 10 years at a cost of $950,000. Painting every 5 years will cost $75,000. If the city expects to maintain the facility indefinitely, what is the estimated capitalized cost at i = 8% per year?
Seattle is attempting to revive its NBA team. Seattle is planning to build a new stadium that will costP250 billion. Annual upkeep is expected to amount to P8,000,000. The turf will have to be replaced every 10 years at a cost of P9,500,000.Painting every 5 years will cost P750,000. If the city expects to maintain the facility indefinitely, what is the estimated capitalized cost at i = 8%per year?
Memorial Hotel & Spa is considering expanding its restaurant business with a 2 new restaurant in California. For this purpose, they are planning to conduct a US$ 250,000 land quality survey. The new restaurants will cost US$ 3.68 million each (total = US$ 7.36 million), excluding installation costs of $263,000 per restaurant. Additionally, US$ 2 million in net working capital will be needed immediately, and the after tax salvage value of both restaurants is $0.5 million. Based on this information, the net investment of these projects is: A. $9,793,000 B. $9,123,000 C. $10,373,000 D. None of these
A town in Wyoming wants to drill a geothermal well to provide district heating steam and hot water for its businesses and residences. Aftergovernment subsidies, the capital investment for the well is $500,000, and the geothermal well will reduce natural gas consumption for steam and hot water production by $50,000 per year. The salvage value of the well is negligible. The simple payback period for this well is 10 years. If the MARR of the town is 8% per year and the life of the geothermal well is 25 years, what is the IRR for this project? Choose the closest answer below. (a) 6.2% (b) 9.1% (c) 8.8% (d) 10.3%.
The city of Columbia is considering extending the runways of its municipal airport so that commercial jets can use the facility. The land necessary for the runway extension is currently a farmland that can be purchased for $350,000. Construction costs for the runway extension are projected to be $600,000, and the additional annual maintenance costs for the extension are estimated to be $22,500. If the runways are extended, a small terminal will be constructed at a cost of $250,000. The annual operating and maintenance costs for the terminal are estimated at $75,000. Finally, the projected increase in flights will require the addition of two air traffic controllers at an annual cost of $100,000. Annual benefits of the runway extension have been estimated as follows (shown): Apply the B–C ratio method with a study period of 20 years and a MARR of 10% per year to determine whether the runways at Columbia Municipal Airport should be extended.
Kenny, Inc., is looking at setting up a new manufacturing plant in South Park. The company bought some land six years ago for $8.7 million in anticipation of using it as a warehouse and distribution site, but the company has since decided to rent facilities elsewhere. The land would net $11.5 million if it were sold today. The company now wants to build its new manufacturing plant on this land; the plant will cost $22.7 million to build, and the site requires $1,020,000 worth of grading before it is suitable for construction. What is the proper cash flow amount to use as the initial investment in fixed assets when evaluating this project? Cash flow: $_______
Coyote Co. is building a waste landfill in the desert between Arizona and California. Coyote estimates that this landfill will be in operation for five years, will cost $250 million to build, and will generate $800 million in revenues during its useful life. Federal law requires that Coyote decommission and decontaminate the site at the end of its useful life. A team of engineers has studied the decontamination procedure and has estimated that Coyote will have to spend $15 million on the decommissioning process when the landfill is shut down in five years. Coyote’s credit-adjusted rate of interest is 10%. Use tables (PV of 1, PVAD of 1, and PVOA of 1) (Use the appropriate factor(s) from the tables provided.) Required: 1-a. Prepare the entry required for the recognition of any ARO asset and liability. 1-b. Prepare an amortization table.