Problem 5-7 Calculating Profitability Index Vince plans to open a self-serve grooming center in a storefront. The grooming equipment will cost $480,000, to be paid immediately. Vince expects aftertax cash inflows of $103,000 annually for eight years, after which he plans to scrap the equipment and retire to the beaches of Nevis. The first cash inflow occurs at the end of the first year. Assume the required return is 13 percent. What is the project's Pl? (Do not round intermediate calculations. Round your answer to 3 decimal places, e.g., 32.161.) PI

Problem 5-7 Calculating Profitability Index Vince plans to open a self-serve grooming center in a storefront. The grooming equipment will cost $480,000, to be paid immediately. Vince expects aftertax cash inflows of $103,000 annually for eight years, after which he plans to scrap the equipment and retire to the beaches of Nevis. The first cash inflow occurs at the end of the first year. Assume the required return is 13 percent. What is the project's Pl? (Do not round intermediate calculations. Round your answer to 3 decimal places, e.g., 32.161.) PI

Essentials Of Investments

11th Edition

ISBN:9781260013924

Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Chapter1: Investments: Background And Issues

Section: Chapter Questions

Problem 1PS

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answer is 4.3 years Please show your solution MANUALLY. don't use excel or financial calculator. Avalon Inc. is considering a new investment. The initial cost of the machinery is $184,000. Avalon expects the machinery to have a five-year useful life, with a $10,000 salvage value. Annual depreciation expense is computed as $34,800. Annual before-tax operating cash inflows are $67,000. Assume an effective tax rate of 30% and that all cash flows occur evenly throughout the year. Management has set a minimum required return of 12% for similar investments. Compute the discounted payback period in years for the potential investment.
Problem 9-07 A firm has earnings of $25,000 before interest, depreciation, and taxes. A new piece of equipment is installed at a cost of $13,000. The equipment will be depreciated over five years, and the firm pays 15 percent of its earnings in taxes. What are the earnings and cash flows for the firm in years 2 and 5, using the two methods of depreciation? Use Exhibit 9.4to answer the questions. Round your answers to the nearest dollar. Modified Accelerated Straight-line Cost Recovery Year 2 Year 5 Year 2 Year 5 Earnings before depreciation and taxes $ $ $ $ Depreciation expense Earnings after depreciation Taxes (15% tax rate) Net earnings $ $ $ $ Cash flow $ $ $ $
Problem 6 - Shirt Corporation is considering purchasing equipment that costs $60,000 and is expected to provide the following cash inflows over its five-year useful life: Year Cash Inflow 1 $18,000 2 $22,000 3 $24,000 4 $16,000 5 $ 9,000 Calculate the payback period for this investment.
TASK 8 - DATA Goldie clothes are planning to expand their clothing business by opening a factory overseas. The initial investment will be £12,500,000. It is expected to generate net revenues of £6,500,000 each year if the project goes ahead. Additional costs for the project will be £3,000,000 per year. [Cashflows occur at the end of each year] The company’s weighted average cost of capital is 11% and the project will have a lifetime of 5 years.
a) Cash Flow Diagram b) manual solution Company C just went into a manufacturing contract. The contract will pay Company C $3 million starting 5 years from and amounts increasing by $100,000 each year through year 10. What is the present worth of the contract if the interest rate is 10% per year?
Week 7 Giant Machinery Ltd is considering to invest in one of the two following Projects to buy a new equipment. Each project will last 5 years and have no salvage value at the end. The company’s required rate of return for all investment projects is 9%. The cash flows of the projects are provided below. Project 1 Project 2 Cost $175,000 $185,000 Future Cash flow Year1 76,000 87,000 Year2 83,000 78,000 Year3 67,000 69,000 Year4 65,000 65,000 Year5 55,000 57,000 Required: a) Identify which project should the company accept based on NPV method. (Note: Please round up the result of each calculation of PV to 2 decimal places only for simplification) b) Identify which project should the company accept based on simple pay back method if the payback criteria is maximum 2 years. c) Which project Giant Machinery should choose if two methods are in conflict.
Problem 6-26 Project Analysis and Inflation Shinoda Manufacturing, Incorporated, has been considering the purchase of a new manufacturing facility for $630,000. The facility is to be fully depreciated on a straightline basis over seven years. It is expected to have no resale value at that time. Operating revenues from the facility are expected to be $455,000, in nominal terms, at the end of the first year. The revenues are expected to increase at the inflation rate of 3 percent. Production costs at the end of the first year will be $300,000, in nominal terms, and they are expected to increase at 4 percent per year. The real discount rate is 6 percent. The corporate tax rate is 24 percent. Calculate the NPV of the project. (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.) NPV
Week 4 Giant Equipment Ltd. is considering two projects to invest next year. Both projects have the same start-up costs. Project A will produce annual cash flows of $42,000 at the beginning of each year for eight years. Project B will produce cash flows of $48,000 at the end of each year for seven years. The company requires a 12% return. Required: Which project should the company select if the interest rate is 14% at the cash flows in Project B is also at the beginning of each year?
Week 4 Giant Equipment Ltd. is considering two projects to invest next year. Both projects have the same start-up costs. Project A will produce annual cash flows of $42,000 at the beginning of each year for eight years. Project B will produce cash flows of $48,000 at the end of each year for seven years. The company requires a 12% return. Which project should the company select if the interest rate is 14% at the cash flows in Project B is also at the beginning of each year?
Question 14 A new baking machine costing $10,000 is purchased. Using a declining balance rate of 15 percent, find the book value at the end of 5 years.

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