Cori's Dog House is considering the installation of a new computerized pressure cooker for hot dogs. The cooker will increase sales by $10,100 per year and will cut annual operating costs by $11,750. The new system will also prompt a $4,900 increase in net working capital. The system will cost $60,200 to purchase and install. This system is expected to have a 4-year life and will be depreciated to zero using straight-line depreciation and have no salvage value. The tax rate is 21 percent and the required return is 10.5 percent. What is the NPV of purchasing the pressure cooker?
Q: Fabulous Fabricators needs to decide how to allocate space year. It is considering the following…
A: Profitability Index:The profitability index measures the amount of profit created per unit of…
Q: Balloons By Sunset (BBS) is considering the purchase of two new hot air balloons so that it can…
A: ARR = (Average net profit x 100) / Initial InvestmentInitial investment = $410,000Average net profit…
Q: Olivier wants to buy a hot dog stand that will generate $118,000 per year forever. Because he needs…
A: Present Value today= (Annual Cash flows / Interest rate)/(1+Interest rate)^5
Q: A bank has $217 million in assets in the 0 percent risk-weight category. It has $223 million in…
A: Total assets = assets in 0% risk-weight category + assets in 20% risk-weight category + assets in…
Q: Logistics accounts for about what percent of the U.S. gross domestic product?
A: Logistics Accounts for about 8-9 percent of the U.S. Gross Domestic Product .Logistics play a…
Q: A company has total owners' equity of $0.622 billion, market-to-book ratio of 4.2, its leverage…
A: In this question, we are required to determine the enterprise value.
Q: Carnes Cosmetics Co.'s stock price is $38, and it recently paid a $2.25 dividend. This dividend is…
A: Current Price of Stock = p0 = $38Current Dividend = d0 = $2.25Growth Rate for first Year 3 = g3 =…
Q: Given the following information, calculate the net present value: Initial outlay is $50,000;…
A: The NPV of a project refers to the measure of the profitability of the project as it discounts the…
Q: Dyl Inc.'s bonds currently sell for $900 and have a par value of $1,000. They pay an $80 annual…
A: Solution:-Yield to maturity refers to the annual return earned by bond holder, if the bond is held…
Q: a. What is the firm's weighted average cost of capital? Note: Do not round intermediate…
A: The cost of equity is the expected return that investors anticipate when they own shares in a…
Q: Calculating IRR, payback, and a missing cash flow. the merriweather printing company is trying to…
A: Payback period (PBP) refers to the period or duration within which the company is able to recover…
Q: a) Assuming no coupons are due on the bond over the next two months, what is now the forward price…
A: A financial agreement between two parties to purchase or sell an asset at a defined future date for…
Q: Required: Suppose two factors are identified for the U.S. economy: the growth rate of industrial…
A: The expected return benefit is an important metric for evaluating investment opportunities and…
Q: A Honda Civic Type R retails for $27,191 (all taxes included). What are the monthly loan payments…
A: A loan refers to a contract between two parties where an amount is forwarded by one party to the…
Q: Consider the following information: Probability of State of Economy State of Economy Boom Good Poor…
A: The expected return of a portfolio refers to the weighted return of the constituent stocks which is…
Q: Fabulous Fabricators needs to decide how to allocate space in its production facility this year. It…
A: Profitability Index:The profitability index measures the amount of profit created per unit of…
Q: Average rate of return method, net present value method, and analysis for a service company The…
A: Average rate of return [ARR] :-ARR provides simple percentage of earning .It ignore time value of…
Q: a. Calculate each project's NPV. Round your answers to two decimal places. Do not round your…
A: "As you have asked multiple questions, according to honoring guidelines we will answer the first…
Q: Your firm is considering a project that will cost $4.719 million up front, generate cash flows of…
A: Since there are two changes in sign of cashflows, there are two IRR
Q: Greta has risk aversion of A=4 when applied to return on wealth over a one-year horizon. She is…
A: Here,Risk PremiumStandard DeviationS&P Portfolio7%18%Hedge Fund Portfolio12%33%
Q: Howell Corporation is interested in acquiring Burns Industries. Burns has 1.5 million shares…
A: Using the following CAPM model equation, the equity cost can be found by inserting given…
Q: George secured an adjustable-rate mortgage (ARM) loan to help finance the purchase of his home 5…
A: Mortgage loans are paid in equal monthly installments that carry the payment for interest and…
Q: Quatro Company issues bonds dated January 1, 2021, with a par value of $760,000. The bonds' annual…
A: A premium bond is a bond whose current price is more than its face value. It will always have a…
Q: Santana Rey has consulted with her local banker and is considering financing an expansion of her…
A: Debt can be explained as the source of income for the institution which comes with the obligation to…
Q: The beta of a firm's stock can be estimated as the slope of the best fitting straight line through a…
A: The beta is a measure of how an individual asset moves (on average) when the overall stock market…
Q: Salinas Corporation has a net income of $15 million per year on net sales of $90 million per year.…
A: The objective of the question is to calculate the annual interest tax shield for Salinas Corporation…
Q: A project has a forecasted cash flow of $121 in year 1 and $132 in year 2. The interest rate is 8%,…
A: To calculate the required rate of return the CAPM formula is used and then discounts the cash flows…
Q: . A 5% semi-annual pay $1,000 bond matures in 4 years. What is the YTM if the price is…
A: Compound = Semiannually = 2Coupon Rate = c = 5 / 2 = 2.5%Face Value = fv = $1000Time = t = 4 * 2 =…
Q: What is the Delta IRR of the difference between the cashflow of the machine with the higher initial…
A: Delta IRR, also known as the Incremental Internal Rate of Return, is a financial metric used to…
Q: What are the Sharpe and Treynor ratios for the fund? (Do not round intermediate calculations. Round…
A: The Sharpe ratio is a measure of an investment or portfolio's risk-adjusted performance. It assists…
Q: Assume that six months ago you bought 2,500 shares of a stock at $70 per share using a margin. The…
A: Margin trading is a practice where an investor borrows funds to purchase securities, and the…
Q: Fenland Company plans to retire $130 million in bonds in five years. To save for the retirement, the…
A: For determination of amount needed to be deposited at the beginning of the year, we need to use…
Q: Brew Ltd. introduced a new product, DV, to its range last year. The machine used to mould each item…
A: Net Present Value (NPV) is a financial metric used to evaluate the profitability of an investment or…
Q: Tram-Ropes Limited Balance Sheet 2022 Cash 1,000,000.00…
A: The cost of capital refers to the cost a company incurs in order to obtain financing for its…
Q: To what extent does "Coverage A2 - Loss Assessment" in a Condominium Unit Owners Comprehensive…
A: Condominium insurance is insurance on a group of buildings owned by individuals. Loss assessment is…
Q: . Given the following information for Lightning Power Co., find the WACC. Assume the company’s tax…
A: The weighted average cost of capital is the rate that a company is expected to pay on average to all…
Q: A family want to have a $213,000.00 higher education fund for their children at the end of 19 years.…
A: An annuity refers to a payment series that is provided in exchange for a lump sum payment. It is…
Q: Rate-based statistics (such as payback and discounted payback) represent summary cash flows, and…
A: a). How much money was deposited and how much money was withdrawn before the trial period in the…
Q: The common stock of Flavorful Teas has an expected return of 16.80 percent. The return on the market…
A: Expected return = 16.80%Market Return = 10%Risk-free rate =3.2%Required:Beta of Stock =?
Q: o. Compare and contrast different methods of capital reconstruction, such as share buybacks,…
A: Capital reconstruction refers to the process by which a company reorganizes its capital structure,…
Q: If put options on USD with a strike price of AUD6.9/USD have a premium of AUD4.3, what is the break-…
A: The moment at which a business generates as much money as it is spending is known as the break-even…
Q: Problem 6-36 Comparing Cash Flow Streams [LO1] You've just joined the investment banking firm of…
A: Salary per month= Total Salary / 12 months= 68000/12= 5666.67Present Value can be calculated using…
Q: Crossfade Corporation has a bond with a par value of $2,000 that sells for $1,917.12. The bond has a…
A: Solution:-Yield to maturity refers to the annual return earned by bond holder, if the bond is held…
Q: What is the price of a 5-year bond with a nominal value of $100, a yield to maturity of 7% (with…
A: Nominal value (V) = $100Yield to maturity (i) = 0.07Coupon rate = 0.10Annual coupon amount (C) = $10…
Q: a. What interest rate would make it worthwhile to incur a compensating balance of $15,500 in order…
A: The compensating balance is the balance amount of the loan that will be paid to avoid paying a…
Q: On January 2, current year, Kalahari Limited issued $1,000,000, 10-year bonds for $1,150,000. The…
A: Semiannual cash payments is computed by applying coupon rate on the par value of the bonds issued.It…
Q: The Koepka Co. and the Woods Co. have both announced IPOs at $49 per share. One of these is…
A: Net Profit= Profit from overvalued stock + profit from undervalued stockFor uninformed…
Q: esfandairi enterprises is considering a new three year expansion project that requires an initial…
A: NPV is also known as Net Present Value.. It is a capital budgeting technique which helps in decision…
Q: You were hired as a consultant to Giambono Company, whose target capital structure is 40% debt, 15%…
A: WACC or Weighted average cost of capital refers to the overall cost of capital of the company or…
Q: You need to estimate the value of Laputa Aviation. You have the following forecasts (in millions of…
A: WACC is a tool used by businesses to determine whether to take on new ventures or investments. A…
Trending now
This is a popular solution!
Step by step
Solved in 3 steps
- Dauten is offered a replacement machine which has a cost of 8,000, an estimated useful life of 6 years, and an estimated salvage value of 800. The replacement machine is eligible for 100% bonus depreciation at the time of purchase- The replacement machine would permit an output expansion, so sales would rise by 1,000 per year; even so, the new machines much greater efficiency would cause operating expenses to decline by 1,500 per year The new machine would require that inventories be increased by 2,000, but accounts payable would simultaneously increase by 500. Dautens marginal federal-plus-state tax rate is 25%, and its WACC is 11%. Should it replace the old machine?Mallette Manufacturing, Inc., produces washing machines, dryers, and dishwashers. Because of increasing competition, Mallette is considering investing in an automated manufacturing system. Since competition is most keen for dishwashers, the production process for this line has been selected for initial evaluation. The automated system for the dishwasher line would replace an existing system (purchased one year ago for 6 million). Although the existing system will be fully depreciated in nine years, it is expected to last another 10 years. The automated system would also have a useful life of 10 years. The existing system is capable of producing 100,000 dishwashers per year. Sales and production data using the existing system are provided by the Accounting Department: All cash expenses with the exception of depreciation, which is 6 per unit. The existing equipment is being depreciated using straight-line with no salvage value considered. The automated system will cost 34 million to purchase, plus an estimated 20 million in software and implementation. (Assume that all investment outlays occur at the beginning of the first year.) If the automated equipment is purchased, the old equipment can be sold for 3 million. The automated system will require fewer parts for production and will produce with less waste. Because of this, the direct material cost per unit will be reduced by 25 percent. Automation will also require fewer support activities, and as a consequence, volume-related overhead will be reduced by 4 per unit and direct fixed overhead (other than depreciation) by 17 per unit. Direct labor is reduced by 60 percent. Assume, for simplicity, that the new investment will be depreciated on a pure straight-line basis for tax purposes with no salvage value. Ignore the half-life convention. The firms cost of capital is 12 percent, but management chooses to use 20 percent as the required rate of return for evaluation of investments. The combined federal and state tax rate is 40 percent. Required: 1. Compute the net present value for the old system and the automated system. Which system would the company choose? 2. Repeat the net present value analysis of Requirement 1, using 12 percent as the discount rate. 3. Upon seeing the projected sales for the old system, the marketing manager commented: Sales of 100,000 units per year cannot be maintained in the current competitive environment for more than one year unless we buy the automated system. The automated system will allow us to compete on the basis of quality and lead time. If we keep the old system, our sales will drop by 10,000 units per year. Repeat the net present value analysis, using this new information and a 12 percent discount rate. 4. An industrial engineer for Mallette noticed that salvage value for the automated equipment had not been included in the analysis. He estimated that the equipment could be sold for 4 million at the end of 10 years. He also estimated that the equipment of the old system would have no salvage value at the end of 10 years. Repeat the net present value analysis using this information, the information in Requirement 3, and a 12 percent discount rate. 5. Given the outcomes of the previous four requirements, comment on the importance of providing accurate inputs for assessing investments in automated manufacturing systems.Filkins Fabric Company is considering the replacement of its old, fully depreciated knitting machine. Two new models are available: Machine 190-3, which has a cost of $190,000, a 3-year expected life, and after-tax cash flows (labor savings and depreciation) of $87,000 per year; and Machine 360-6, which has a cost of $360,000, a 6-year life, and after-tax cash flows of $98,300 per year. Knitting machine prices are not expected to rise because inflation will be offset by cheaper components (microprocessors) used in the machines. Assume that Filkins’ cost of capital is 14%. Should the firm replace its old knitting machine? If so, which new machine should it use? By how much would the value of the company increase if it accepted the better machine? What is the equivalent annual annuity for each machine?
- 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?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?Newmarge Products Inc. is evaluating a new design for one of its manufacturing processes. The new design will eliminate the production of a toxic solid residue. The initial cost of the system is estimated at 860,000 and includes computerized equipment, software, and installation. There is no expected salvage value. The new system has a useful life of 8 years and is projected to produce cash operating savings of 225,000 per year over the old system (reducing labor costs and costs of processing and disposing of toxic waste). The cost of capital is 16%. Required: 1. Compute the NPV of the new system. 2. One year after implementation, the internal audit staff noted the following about the new system: (1) the cost of acquiring the system was 60,000 more than expected due to higher installation costs, and (2) the annual cost savings were 20,000 less than expected because more labor cost was needed than anticipated. Using the changes in expected costs and benefits, compute the NPV as if this information had been available one year ago. Did the company make the right decision? 3. CONCEPTUAL CONNECTION Upon reporting the results mentioned in the postaudit, the marketing manager responded in a memo to the internal audit department indicating that cash inflows also had increased by a net of 60,000 per year because of increased purchases by environmentally sensitive customers. Describe the effect that this has on the analysis in Requirement 2. 4. CONCEPTUAL CONNECTION Why is a postaudit beneficial to a firm?