Construction cost for year 1 & 2 = $6 mil , $12 million totoal Operation and Maintenance (op. and main) Costs = 3rd yr (1st yr of operation) to 25th yr (last yr of operation). with nominal $800,000 in 3rd yr Annual electricity sales = year 3~25 , with nominal $850,000 in 3rd yr annual growth rate of the op. and main costs = 1%, annual growth rate of revenue = 3% social discount rate = 0.04 inflation = 0.02 terminal value = $23 mil. (nominal) 3) an additional $50,000 is added every 3 years for a special "cleaning" and therefore the project life has another 6 years with the terminal value unchanged. would this change be justified?

Construction cost for year 1 & 2 = $6 mil , $12 million totoal Operation and Maintenance (op. and main) Costs = 3rd yr (1st yr of operation) to 25th yr (last yr of operation). with nominal $800,000 in 3rd yr Annual electricity sales = year 3~25 , with nominal $850,000 in 3rd yr annual growth rate of the op. and main costs = 1%, annual growth rate of revenue = 3% social discount rate = 0.04 inflation = 0.02 terminal value = $23 mil. (nominal) 3) an additional $50,000 is added every 3 years for a special "cleaning" and therefore the project life has another 6 years with the terminal value unchanged. would this change be justified?

Managerial Accounting

15th Edition

ISBN:9781337912020

Author:Carl Warren, Ph.d. Cma William B. Tayler

Publisher:Carl Warren, Ph.d. Cma William B. Tayler

Chapter12: Capital Investment Analysis

Section: Chapter Questions

Problem 8E: Net present value method for a service company Coast-to-Coast Inc. is considering the purchase of an...

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Net present value method for a service company Coast-to-Coast Inc. is considering the purchase of an additional delivery vehicle for 70,000 on January 1, 20Y1. The truck is expected to have a five-year life with an expected residual value of 15,000 at the end of five years. The expected additional revenues from the added delivery capacity are anticipated to be 65,000 per year for each of the next five years. A driver will cost 40,000 in 20Y1, with an expected annual salary increase of 2,000 for each year thereafter. The annual operating costs for the truck are estimated to be 6,000 per year. a. Determine the expected annual net cash flows from the delivery truck investment for 20Y120Y5. b. Compute the net present value of the investment, assuming that the minimum desired rate of return is 12%. Use the present value table appearing in Exhibit 2 of this chapter. c. Is the additional truck a good investment based on your analysis? Explain.
Cost of Capital, Net Present Value Leakam Companys product engineering department has developed a new product that has a 3-year life cycle. Production of the product requires development of a new process that requires a current 100,000 capital outlay. The 100,000 will be raised by issuing 60,000 of bonds and by selling new stock for 40,000. The 60,000 in bonds will have net (after-tax) interest payments of 3,000 at the end of each of the 3 years, with the principal being repaid at the end of Year 3. The stock issue carries with it an expectation of a 17.5% return, expressed in the form of dividends at the end of each year (with 7,000 in dividends expected for each of the next 3 years). The sources of capital for this investment represent the same proportion and costs that the company typically has. Finally, the project will produce after-tax cash inflows of 50,000 per year for the next 3 years. Required: 1. Compute the cost of capital for the project. (Hint: The cost of capital is a weighted average of the two sources of capital, where the weights are the proportion of capital from each source.) 2. CONCEPTUAL CONNECTION Compute the NPV for the project. Explain why it is not necessary to subtract the interest payments and the dividend payments and appreciation from the inflow of 50,000 in carrying out this computation.
Construction cost for year 1 & 2 = $6 mil , $12 million totoal Operation and Maintenance (op. and main) Costs = 3rd yr (1st yr of operation) to 25th yr (last yr of operation). with nominal $800,000 in 3rd yr Annual electricity sales = year 3~25 , with nominal $850,000 in 3rd yr annual growth rate of the op. and main costs = 1%, annual growth rate of revenue = 3% social discount rate = 0.04 inflation = 0.02 terminal value = $23 mil. (nominal) 2) what is the IRR and NPV of the project
Construction cost for year 1 & 2 = $6 mil , $12 million totoal Operation and Maintenance (op. and main) Costs = 3rd yr (1st yr of operation) to 25th yr (last yr of operation). with nominal $800,000 in 3rd yr Annual electricity sales = year 3~25 , with nominal $850,000 in 3rd yr annual growth rate of the op. and main costs = 1%, annual growth rate of revenue = 3% social discount rate = 0.04 inflation = 0.02 terminal value = $23 mil. (nominal) 4) under the original project life of 25 years, conduct a sensitivity analysis where the sales decrease by 10% and then go up by 10%
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profile-image Time remaining: 00 : 09 : 41 Accounting We have the following data for a power plant: 1 MW CENTRAL ECONOMIC BALANCE Power: 1 Mwa Maintenance cost: 3% per year Initial cost of operation: 5% per year Regulated Rate: $0.015/kWh (20 years) Project cost = $750,000.00 Plant factor= 60% Energy: 5256000 KWh Income from regulated tariff: 78840 Annual revenue increase: 6% Initial maintenance cost/year of annual maintenance (2% installation): $ 22,500.00 Annual maintenance increase: 5% Initial cost of operation/year (1% Installation) $ 37,500.00 Annual operation increase: 3% It is assumed that in year 10, an equipment update will be carried out whose cost will be 25% of the value of the investment = $187,500.00 SOLVE: In what year will the investment be recovered?
We have the following data for a power plant: 1 MW CENTRAL ECONOMIC BALANCE Power: 1 Mwa Maintenance cost: 3% per year Initial cost of operation: 5% per year Regulated Rate: $0.015/kWh (20 years) Project cost = $750,000.00 Plant factor= 60% Energy: 5256000 KWh Income from regulated tariff: 78840 Annual revenue increase: 6% Initial maintenance cost/year of annual maintenance (2% installation): $ 22,500.00 Annual maintenance increase: 5% Initial cost of operation/year (1% Installation) $ 37,500.00 Annual operation increase: 3% It is assumed that in year 10, an equipment update will be carried out whose cost will be 25% of the value of the investment = $187,500.00 SOLVE: In what year will the investment be recovered?
Maintenance cost of an equipment is ₱20,000.00 for 2 years, ₱40,000.00 at the end of 4 years and ₱80,000.00 at the end of 8 years. Compute for the semi-annual amount that be set aside for this equipment. Money worth 10% compounded annually. (Ans: ₱7,425.00)
The business units of contractor companies carry out investment expenditures for a capital of 80,015,000 the investment is expected to be generate a cash flow of 6,015,000 per year for 8 years, costs capital (cost of money) of 5% per year and an assumed interest rate of 10%. Pelase Count : a. Payback Period of Investment b. NPV c. Profitability Index d. IRR
Sales was estimated at 80,000 pieces annually with a rate of 6 pu. Its variable mfg costs are 2.50 pu with S&D and general expenses related to production is 59,000 on annual basis. Its fixed manufacturing costs (excluding depreciation) at 45,000 on annual basis. Investment made is 350,000 with related to various moulds & equipment. The equipment have a 3 year life with ending salvage value of 20,000 where it was followed SLM depreciation.The rate of tax will be at 40%. Required: a.Estimated increase in annual level of net income from the planned manufacture and sale of product b.Annual net cash flows which was expected from the project. c.With the assumption of discounted annual rate of 15 percent (Round your "PV factors" to 3 decimal places, payback period to the nearest tenth of a year and the return on average investment to the nearest tenth of a percent. Round net present value to the nearest whole amount.) Payback period ______ years Return in average ______ % Net…
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A company project capitalized for $ 50,000 invested in depreciable assets will earn a uniform annual income of $ 19,849 in 10 years. The costs for operation and maintenance totals $ 9,000 each year. If the company expects its capital to earn 12% before income taxes, is the investment worthwhile? Determine by usinga.) Rate of Return Method; b.) Annual Worth Method c.) Present Worth Method