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Bundle: Contemporary Financial Management, 14th + MindTap Finance, 1 term (6 months) Printed Access Card
14th Edition
ISBN: 9781337587563
Author: MOYER, R. Charles; McGuigan, James R.; Rao, Ramesh P.
Publisher: Cengage Learning
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Question
Chapter 10, Problem 2P
a)
Summary Introduction
To determine: The
b)
Summary Introduction
To determine: Whether the project accepted or not.
c)
Summary Introduction
To determine: The meaning of the
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Students have asked these similar questions
Your new employer, Freeman Software, is considering a new project whose data are shown below. The equipment that would be used has a 3-year tax life, and the allowed depreciation rates for such property are 33.33%, 44.45%, 14.81%, and 7.41% for Years 1 through 4. Revenues and other operating costs are expected to be constant over the project's 10-year expected life. What is the Year 1 cash flow?
Equipment cost (depreciable basis)
$65,000
Sales revenues, each year
$60,000
Operating costs (excl. deprec.)
$25,000
Tax rate
25.0%
a. $36,869
b. $31,849
c. $35,114
d. $31,666
e. $33,442
A firm wishes to bid on a contract that is expected to yield the following after-tax net cash flows at the end of each year:
Year
Net Cash Flow
1
$3,000
2
10,000
3
9,000
4
8,000
5
4,000
6
6,000
7
4,000
8
-$1,500
To secure the contract, the firm must spend $50,000 to retool its plant. This retooling will have no salvage value at the end of the 8 years. Comparable investment alternatives are available to the firm that earn 11 percent compounded annually. The depreciation tax benefit from the retooling is reflected in the net cash flows in the table.
Use Table II to answer the questions.
Compute the project's net present value. Round your answer to the nearest dollar.
NPV: $
Should the project be adopted?
The project be adopted.
What is the meaning of the computed net present value figure? Round your answer to the nearest dollar.
The value of the firm, and therefore the shareholders’ wealth, is by $ as a result of…
A firm wishes to bid on a contract that is expected to yield the
following after-tax net cash flows at the end of each year:
Year
Net Cash Aow
1
$5,000
2
8,000
3
9,000
4
8,000
8,000
5,000
7
3,000
8
$-1,500
To secure the contract, the firm must spend $30,000 to retool its
plant. This retooling will have no salvage value at the end of the
8 years. Comparable investment alternatives are available to the
firm that earn 12 percent compounded annually. The
depreciation tax benefit from the retooling is reflected in the
net cash flows in the table.
Chapter 10 Solutions
Bundle: Contemporary Financial Management, 14th + MindTap Finance, 1 term (6 months) Printed Access Card
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