1. A P15M worth of fixed capital investment is required for a proposed powerplant, and an estimated P2.75M working capital. Annual depreciation is estimated to be 12% of the fixed capital investment.Determine the rate of return on the total investment and the payback period if the annual profit is P3.5M

Given, Fixed Capital Investment = $15,000, 000 Working Capital = P 2,750,000 Annual Depreciation…

Answered: M worth of fixed capital investment is…

M worth of fixed capital investment is required for a proposed powerplant, and an estimated P2.75M working capital. Annual depreciation is estimated to be 12%

Managerial Economics: Applications, Strategies and Tactics (MindTap Course List)

14th Edition

ISBN:9781305506381

Author:James R. McGuigan, R. Charles Moyer, Frederick H.deB. Harris

Publisher:James R. McGuigan, R. Charles Moyer, Frederick H.deB. Harris

Chapter17: Long-term Investment Analysis

Section: Chapter Questions

Problem 2E

See similar textbooks

Similar questions

Cori's Meats is looking at a new sausage system with an installed cost of $495,000. This cost will be depreciated straight-line to zero over the project’s five-year life, at the end of which the sausage system can be scrapped for $73,000. The sausage system will save the firm $175,000 per year in pretax operating costs, and the system requires an initial investment in net working capital of $32,000. If the tax rate is 23 percent and the discount rate is 10 percent, what is the NPV of this project?
You have been asked to evaluate the profitability of building a new distribution center under the following conditions:I. The proposal is for a distribution center costing $1,500,000. The facility has an expected useful life of 35 years and a net salvage value (net proceeds from its sale after tax adjustments) of $225,000.II. Annual savings (due to a better strategic location) of $227,000 are expected, annual maintenance and administrative costs will be $114,000, and annual income taxes are $43,000. Suppose that the firm's MARR is 12%. Determine the net present worth of the investment.
Your company is considering a new computer system with an initial cost of $1 million. When implemented, the system will save $300,000 per year in inventory and administration costs. The system has a service life of five years and is classified in the three-year MACRS category. At the end of the fifth year, its residual value was estimated at $50,000. The system has no impact on net working capital. The marginal tax rate is 40 per cent. The required rate of return is 8 per cent.
A UK manufacturer of particle board furniture is considering investing in a new stamping machine. The machine is expected to have a useful life of five years, after which the machine can be sold as scrap for an estimated £5000. The firm plans to issue bonds to pay for the machine and intends to treat the interest rate on the bonds as the relevant discount rate for evaluating the project. The machine will cost the firm £175,000, all of which must be paid at the beginning of the project. The new stamping machine will reduce costs £50,000 per year, for each year of the machineʹs life. The firm treats all the cost savings as if they occur at year end. Should the firm plan to undertake the investment project, bonds will be issued in approximately three months. The firm has estimated the supply and demand for loanable funds given by these equations:LD = 25,000,000 - 125,000,000r LS = 2,500,000 + 62,500,000r(1) Given the information above, should the firm undertake the investment in the…
An investment of P8.5 M is expected to yield an annual income of P2.8 M. Determine the payout period in years based on the following estimates. Annual depreciation = P1.0 M Operational expenses = P0.6 M Taxes and insurance = P0.2 M Miscellaneous expenses = P50,000
To open a new store, Solomon Tire Company plans to invest $306,000 in equipment expected to have a six-year useful life and no salvage value. Solomon expects the new store to generate annual cash revenues of $323,000 and to incur annual cash operating expenses of $186,000. Solomon's average income tax rate is 35 percent. The company uses straight-line depreciation. Required Determine the expected annual net cash inflow from operations for each of the first four years after Solomon opens the new store. (Negative amounts should be indicated by a minus sign.) Net cash Inflow/Outflow Year 1 Year 2 Year 3 Year 4
You are evaluating two different silicon wafer milling machines. The Techron I costs $228,000, has a three-year life, and has pretax operating costs of $59,000 per year. The Techron II costs $400,000, has a five-year life, and has pretax operating costs of $32,000 per year. For both milling machines, use straight-line depreciation to zero over the project’s life and assume a salvage value of $36,000. If your tax rate is 24 percent and your discount rate is 8 percent, compute the EAC for both machines. Note: Your answer should be a negative value and indicated by a minus sign. Do not round intermediate calculations and round your answers to 2 decimal places, e.g., 32.16.
You are evaluating a project that will require an investment of $15 million that will be depreciated over a period of 19 years. You are concerned that the corporate tax rate will increase during the life of the project. Would this increase the accounting break-even point? Would it increase the NPV break-even point?
CT Corp. is considering two mutually exclusive projects. Both require an initial investment of P120,000 at t = 0. Project X has an expected life of 2 years with after-tax cash inflows of P67,000 and P75,000 at the end of Years 1 and 2, respectively. In addition, Project X can be repeated at the end of Year 2 with no changes in its cash flows. Project Y has an expected life of 4 years with after-tax cash inflows of P38,500 at the end of each of the next 4 years. Each project has a WACC of 8%. Listed below are the requirements for this data set: Using the replacement chain approach, how much is the NPV of Project X? (Round the final answer to the nearest peso. Use the "NPV formula" in excel for exact computation. Otherwise, answer based on rounded pv factors will also be accepted.) Which of the two projects will be more profitable considering the replacement chain approach on the NPV of Project X? Using the equivalent annuity approach, what is the equivalent annuity of Project Y?…
Power to a remote transmitting station is provided by a diesel-electric generator unit. The original cost of the unit P65,000. It costs P2,000 to ship the unit to the job site An additional cost of P3,000 was incurred for installation. (a) Determine the annual depreciation cost by the straight line method, if the unit has an expected life of 10 years. The salvage value of the unit at the end of its life was estimated at P5,000. (b) Determine the annual depreciation cost by the sinking fund method. Assume that the annual charge for depreciation was deposited in a fund drawing compound interest at the rate of 5%
Two proposals are being considered by a company for building a bottling plant. These are: Proposal A:The construction of a building now costing P700,000. Proposal B: The construction of a smaller building now costing P600,000, and an additional wing costing P200,000 at the end of 10 years. Assuming depreciation to be negligible, which of the two proposals is more economical if interest is at 6%?
Smith and Co. has to choose between two mutually exclusive projects. If it chooses project A, Smith and Co. will have the opportunity to make a similar investment in three years. However, if it chooses project B, it will not have the opportunity to make a second investment. The following table lists the cash flows for these projects. If the firm uses the replacement chain (common life) approach, what will be the difference between the net present value (NPV) of project A and project B, assuming that both projects have a weighted average cost of capital of 10%? Cash Flow Project A Project B Year 0: –$17,500 Year 0: –$40,000 Year 1: 10,000 Year 1: 8,000 Year 2: 16,000 Year 2: 16,000 Year 3: 15,000 Year 3: 15,000 Year 4: 12,000 Year 5: 11,000 Year 6: 10,000 $15,731 $11,012 $12,585 $9,439 $14,158 Smith and Co. is considering a three-year project that has a weighted average cost of capital…