National Chemical Company manufactures a chemical compound that is sold for $58 per gallon. A new variant of the chemical has been discovered, and if the basic compound were processed into the new variant, the selling price would be $90 per gallon. National expects the market for the new compound variant to be 8,500 gallons initially and determines that processing costs to refine the basic compound into the new variant would be $170,000.
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National Chemical Company manufactures a chemical compound that is sold for $58 per gallon. A new variant of the chemical has been discovered, and if the basic compound were processed into the new variant, the selling price would be $90 per gallon. National expects the market for the new compound variant to be 8,500 gallons initially and determines that
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- A financial investor has an investment portfolio. A bond in her investment portfolio will mature next month and provide her $25,000 to reinvest. The choices for reinvestment have been narrowed to the following two options:Option 1: Reinvest in a foreign bond that will mature in one year. Thistransaction will entail a brokerage fee of $150. For simplicity, assume thatthe bond will provide interest over the one-year period of $2,450, $2,000, or $1,675 and that the probabilities of these occurrences are assessed to be 0.25, 0.45, and 0.30, respectively.Option 2: Reinvest in a $25,000 certificate with a savings and loan association.Assume that this certificate has an effective annual rate of 7.5%.Which form of reinvestment should the investor choose in order to maximize her expected financial gain?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 manufactures circuit boards and other electronic parts for various commercial products. Design changes in part of the product line, which are expected to increase sales, will require changes in the manufacturing operation. The cost basis of new equipment required is $220,000 (MACRS five-year property class). Increased annual revenues, in year zero dollars, are estimated to be $360,000. Increased annual expenses, in year zero dollars, are estimated to be $239,000. The estimated market value of equipment in actual dollars at the end of the six-year analysis period is $40,000. General price inflation is estimated at 4.9% per year; the total increase rate of annual revenues is 2.5%, and for annual expenses it is 5.6%; the after-tax MARR (in market terms) is 10% per year (im); and t = 39%. (Refer to Chapter 7 and Problem 8.7) a. Based on an after-tax, actual-dollar analysis, what is the maximum amount that your company can afford to spend on the total project (i.e., changing…
- When evaluating a new project, the firm must consider all off the following factors EXCEPT: Sunk costs such as previous expenditures associated with a market test to determine the feasibility of the project. Changes in net operating working capital attributable to the project. The current after-tax salvage value of a piece of previously acquired land where the new project will be housed. The side effect that the project may have on the firm’s current business and operation.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?…By outbidding its competitors, Turbo Image Processing (TIP), a defense contractor, has received a contract worth $7,300,000 to build navy flight simulators for U.S. Navy pilot training over two years. For some defense contracts, the U.S. government makes an advance payment when the contract is signed, but in this case, the government will make two progressive payments: $4,300,000 at the end of the first year and the $3.000,000 balance at the end of the second year. The expected cash outflows required in order to produce these simulators are estimated to be $1,000,000 now, $2.000,000 during the first year, and $4,320,000 during the second year. The expected net cash flows from this project are summarized as follows: In normal situations, TIP would not even consider a marginal project such as this one in the first place. However, hoping that TIP can establish itself as a technology leader in the field. management felt that it was worth outbidding its competitors by providing the lowest…
- 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…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…A utility company is considering the following plans to provide a certain service required by resent demand and the respective growth of demand for the coming 18 years. Plan R requires an immediate investment of 500,000 in property that has an estimated life of 18 years and with 20% terminal salvage value. Annual disbursements for operation and maintenance will be 50,000. Annual property taxes will be 2% of the first cost. Plan S requires an immediate investment of 300,000 in property that has an estimated life of 18 years with 20% terminal salvage value. Annual disbursements for its operation and maintenance during the first 6 years will be 40,000. After 6 years, an additional investment of 400,000 will be required having an estimated life of 12 years with 40% terminal salvage value. After this additional property is installed, annual disbursements for operation and maintenance of the combined property will be 60,000. Annual property taxes will be 2% of the first cost of property in…
- You are faced with making a decision on a large capital investment proposal. The capital investment amount is $640,000. Estimated annual revenue at the end of each year in the eight year study period is $180,000. The estimated annual year-end expenses are $42,000 starting in year one. These expenses begin decreasing by $4,000 per year at the end of year four and continue decreasing through the end of year eight. Assuming a $20,000 market value at the end of year eight and a MARR = ε =12% per year, answer the following questions. Using AW, determine whether this proposal is acceptable. What is the ERR of this proposal? Is it acceptable? What is the IRR of this proposal? Is it acceptable? What is the simple and discounted payback period for this proposal?Two alternatives are being considered by a food processor for the warehousing and distribution of its canned products in a sales region. These canned products come in standard cartons of 24 cans per carton. The two alternatives are as follows.Alternative A: To have its own distribution system. The administrative costs are estimated at $43,000 per year, and other general operating expenses are calculated at $0.009 per carton. A warehouse will have to be purchased, at a cost of $300,000. Alternative B: To sign an agreement with an independent distribution company that is asking a payment of $0.10 per carton distributed. Assume a study period of 10 years and that the warehouse can be sold at the end of this period for $200,000. a. Which alternative should be chosen, if management expects that the number of cartons to be distributed will be 600,000 per year? b. Find the minimum number of cartons per year that will make the alternative of having a distribution system (Alt. A) more…AMT, Inc., is considering the purchase of a digital camera for the maintenance of design specifications by feeding digital pictures directly into an engineering workstation where computer-aided design files can be superimposed over the digital pictures. Differences between the two images can be noted, and corrections, as appropriate, can then be made by design engineer. The capital investment requirement is P345,000 and the estimated market value of the system after a six-year study period is P115,000. Annual revenues attributable to the new camera system will be P120,000, whereas additional annual expenses will be P20,000. The corporation's MARR is 20% per year. Show whether this is a desirable investment by using the ERR method.