Question

Cash flows estimation and capital budgeting:

You are the head of finance department in XYZ Company. You are considering adding a new machine to your production facility. The new machine’s base price is $11,000.00, and it would cost another $1,970.00 to install it. The machine falls into the MACRS 3-year class (the applicable MACRS depreciation rates are 33.33%, 44.45%, 14.81%, and 7.41%), and it would be sold after three years for $1,550.00. The machine would require an increase in net working capital (inventory) of $840.00. The new machine would not change revenues, but it is expected to save the firm $41,545.00 per year in before-tax operating costs, mainly labor. XYZ's marginal tax rate is 32.00%.

If the project's cost of capital is 17.10%, what is the NPV of the project?

Round your answer to two decimal places. For example, if your answer is $345.667 round as 345.67 and if your answer is .05718 or 5.718% round as 5.72.

You are the head of finance department in XYZ Company. You are considering adding a new machine to your production facility. The new machine’s base price is $11,000.00, and it would cost another $1,970.00 to install it. The machine falls into the MACRS 3-year class (the applicable MACRS depreciation rates are 33.33%, 44.45%, 14.81%, and 7.41%), and it would be sold after three years for $1,550.00. The machine would require an increase in net working capital (inventory) of $840.00. The new machine would not change revenues, but it is expected to save the firm $41,545.00 per year in before-tax operating costs, mainly labor. XYZ's marginal tax rate is 32.00%.

If the project's cost of capital is 17.10%, what is the NPV of the project?

Round your answer to two decimal places. For example, if your answer is $345.667 round as 345.67 and if your answer is .05718 or 5.718% round as 5.72.

A. $41,705.42

B. $52,791.67

C. $11,000.00

D. $12,970.00

E. $30,095.45

a. What is the initial cash outlay?

b. What is the free cash flow for year 1?

c. What is the additional Year-3 cash flow (i.e, the after-tax salvage and the return of working capital – also called terminal value)?

b. What is the free cash flow for year 1?

c. What is the additional Year-3 cash flow (i.e, the after-tax salvage and the return of working capital – also called terminal value)?

Step 1

NPV refers to the net present value of an investment. It is calculated as the present value of future cash flows less the initial cash outlay.

Step 2

Step 3

Tagged in

Q: Hi. How would I go about solving a problem like the two I have submitted? Kathleen just received a...

A: Calculation of bonus value: The bonus value of Kathleen’s dad is $206,608.28.Excel spreadsheet:

Q: Hank purchased a car for $20,500 two years ago using a 4-year loan with an interest rate of 6.0 perc...

A: Calculate the monthly payment as follows:

Q: New-Project Analysis Madison Manufacturing is considering a new machine that costs $350,000 and woul...

A: Calculate the net present value under worst case as follows:

Q: Management, the board of directors and creditors are working to avoid a bankruptcy situation for a f...

A: Short-term restructuring is important when the company believes the present situation is temporary a...

Q: Bond interest payments before and after taxes Charter Corp. has issued 2,798 debentures with a tot...

A: Calculation of Amount of Interest per bond, Total Interest Expense and After-tax Interest Cost:The A...

Q: SCI just paid a dividend (Do) of $2.16 per share, and its annual dividend is expected to grow at a c...

A: Calculate the intrinsic value per share as follows:

Q: An investment pays $2,100 per year for the first 7 years, $4,200 per year for the next 7 years, and ...

A: The discount rate is 8.20% compounding quarterly. The cash flows have a periodicity of 1 year. Hence...

Q: Suppose the real rate is 2.9 percent and the inflation rate is 4.5 percent. What rate wou...

A: Treasury bills are short-term financial instrument which are bought generally on discount price and ...

Q: You buy a 20-year bond with a coupon rate of 8.8% that has a yield to maturity of 9.8%. (Assume a fa...

A: Face Value (FV) = $1,000Annual Coupon Rate = 8% Calculation of semi-annual coupon payment:

Sorry about that. What wasn’t helpful?