Howell Petroleum is considering a new project that complements its existing business.The machine required for the project costs $3.83 million. The marketing departmentpredicts that sales related to the project will be $2.53 million per year for the next fouryears, after which the market will cease to exist. The machine will be depreciated downto zero over its four-year economic life using the straight-line method. Cost of goodssold and operating expenses related to the project are predicted to be 30 percent ofsales. The company also needs to add net working capital of $180,000 immediately. Theadditional net working capital will be recovered in full at the end of the project's life. Thecorporate tax rate is 23 percent. The required rate of return is 13 percent.What is the NPV for this project? (Do not round intermediate calculations and enteryour answer in dollars, not millions of dollars, rounded to 2 decimal places, e.g.,1,234,567.89.)

Let's go step by step:1. Initial investment: Machine cost = $3.83 million Initial net working…

Answered: Howell Petroleum is considering a new…

EBK CONTEMPORARY FINANCIAL MANAGEMENT

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter9: Capital Budgeting And Cash Flow Analysis

Section: Chapter Questions

Problem 4P

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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?
Postman Company is considering two independent projects. One project involves a new product line, and the other involves the acquisition of forklifts for the Materials Handling Department. The projected annual operating revenues and expenses are as follows: Required: Compute the after-tax cash flows of each project. The tax rate is 40 percent and includes federal and state assessments.
Thurston Petroleum is considering a new project that complements its existing business. The machine required for the project costs $4.35 million. The marketing department predicts that sales related to the project will be $2.45 million per year for the next four years, after which the market will cease to exist. The machine will be depreciated to zero over its 4-year economic life using the straight-line method. Cost of goods sold and operating expenses related to the project are predicted to be 25 percent of sales. The company also needs to add net working capital of $175,000 immediately. The additional net working capital will be recovered in full at the end of the project’s life. The tax rate is 25 percent and the required return for the project is 10 percent. What is the value of the NPV for this project? (Do not round intermediate calculations and enter your answer in dollars, not millions of dollars, rounded to 2 decimal places, e.g., 1,234,567.89.)
Medavoy Company is considering a new project that complements its existing business. The machine required for the project costs $4.15 million. The marketing department predicts that sales related to the project will be $2.39 million per year for the next four years, after which the market will cease to exist. The machine will be depreciated to zero over its 4-year economic life using the straight-line method. Cost of goods sold and operating expenses related to the project are predicted to be 25 percent of sales. The company also needs to add net working capital of $155,000 immediately. The additional net working capital will be recovered in full at the end of the project’s life. The corporate tax rate is 21 percent and the required return for the project is 10 percent. What is the value of the NPV for this project?
Medavoy Company is considering a new project that complements its existing business. The machine required for the project costs $4.35 million. The marketing department predicts that sales related to the project will be $2.45 million per year for the next four years, after which the market will cease to exist. The machine will be depreciated to zero over its 4-year economic life using the straight-line method. Cost of goods sold and operating expenses related to the project are predicted to be 25 percent of sales. The company also needs to add net working capital of $175,000 immediately. The additional net working capital will be recovered in full at the end of the project’s life. The corporate tax rate is 25 percent and the required return for the project is 10 percent. What is the value of the NPV for this project? (Do not round intermediate calculations and enter your answer in dollars, not millions of dollars, rounded to 2 decimal places, e.g., 1,234,567.89.)
Medavoy Company is considering a new project that complements its existing business. The machine required for the project costs $4.35 million. The marketing department predicts that sales related to the project will be $2.45 million per year for the next four years, after which the market will cease to exist. The machine will be depreciated to zero over its 4-year economic life using the straight-line method. Cost of goods sold and operating expenses related to the project are predicted to be 25 percent of sales. The company also needs to add net working capital of $175,000 immediately. The additional net working capital will be recovered in full at the end of the project's life. The corporate tax rate is 25 percent and the required return for the project is 10 percent. What is the value of the NPV for this project? (Do not round intermediate calculations and enter your answer in dollars, not millions of dollars, rounded to 2 decimal places, e.g., 1,234,567.89.) NPV Should the company…
Bronco Co. is considering a new project that complements its existing business. The machine required for the project costs $3.65 million. The marketing department predicts that sales related to the project will be $2.65 million per year for the next four years, after which the market will cease to exist. The machine will be depreciated to zero over its four-year economic life using the straight-line method. Cost of goods sold and operating expenses related to the project are predicted to be 40 percent (the 40 percent represents both COGS and Op. Exp.) of sales. The company also needs to add net working capital of $175,000 mmediately. The additional net working capital will be recovered in full at the end of the project's life. The corporate tax rate is 22 percent and the required return for the project is 12 percent. Should the company proceed with the
Medavoy Company is considering a new project that complements its existing business. The machine required for the project costs $4.5 million. The marketing department predicts that sales related to the project will be $2.67 million per year for the next four years, after which the market will cease to exist. The machine will be depreciated to zero over its 4-year economic life using the straight-line method. Cost of goods sold and operating expenses related to the project are predicted to be 30 percent of sales. The company also needs to add net working capital of $190,000 immediately. The additional net working capital will be recovered in full at the end of the project's life. The corporate tax rate is 23 percent and the required return for the project is 13 percent. What is the value of the NPV for this project? (Do not round intermediate calculations and enter your answer in dollars, not millions of dollars, rounded to 2 decimal places, e.g., 1,234,567.89.) Answer is complete but…
Howell Petroleum is considering a new project that complements its existing business. The machine required for the project costs GH¢3.8 million. The marketing department predicts that sales related to the project will be GH¢2.5 million per year for the next four years, after which the market will cease to exist. The machine will be depreciated down to zero over its four-year economic life using the straightline method. Cost of goods sold and operating expenses related to the project are predicted to be 25 percent of sales. Howell also needs to add net working capital of GH¢ 150,000 immediately. The additional net working capital will be recovered in full at the end of the project’s life. The corporate tax rate is 35 percent. The required rate of return for Howell is 16 percent. Should Howell proceed with the project?
B2B Co. is considering the purchase of equipment that would allow the company to add a new product to its line. The equipment is expected to cost $380,800 with a 10-year life and no salvage value. It will be depreciated on a straight-line basis. The company expects to sell 152,320 units of the equipment's product each year. The expected annual income related to this equipment follows. Sales $ 238,000 Costs Materials, labor, and overhead (except depreciation on new equipment) Depreciation on new equipment Selling and administrative expenses Total costs and expenses 83,000 38,080 23,800 144,880 93,120 37,248 Pretax income Income taxes (40%) Net income $ 55,872 If at least an 9% return on this investment must be earned, compute the net present value of this investment. (PV of $1, FV of $1, PVA of $1, and FVA of $1) (Use appropriate factor(s) from the tables provided.) Chart Values are Based on: n = 10 i = 9|% Select Chart Amount PV Factor Present Value Present Value of an Annuity of 1…
1. Medavoy Company is considering a new project that complements its existing business. The machine required for the project costs $4.75 million. The marketing department predicts that sales related to the project will be $2.63 million per year for the next four years, after which the market will cease to exist. The machine will be depreciated to zero over its 4-year economic life using the straight-line method. Cost of goods sold and operating expenses related to the project are predicted to be 25 percent of sales. The company also needs to add net working capital of $215,000 immediately. The additional net working capital will be recovered in full at the end of the project's life. The corporate tax rate is 23 percent and the required return for the project is 10 percent. What is the value of the NPV for this project? (Do not round intermediate calculations and enter your answer in dollars, not millions of dollars, rounded to 2 decimal places, e.g. .,1,234,567.89.) 2. Shinoda…
Howell Petroleum is considering a new project that complements its existing business. The machine required for the project costs $5.0 million. The marketing department predicts that sales related to the project will be $4.00 million per year for the next four years, after which the market will cease to exist. The machine will be depreciated down to zero over its four-year economic life using the straight-line method. Cost of goods sold are predicted to be 25 percent of sales. Howell also needs to add net working capital of $150,000 immediately. The additional net working capital will be recovered in full at the end of the project’s life. The corporate tax rate is 35 percent. The after-tax WACC for Howell is 13 percent. The machine can be sold for $600,000 at T=4. What is the cash flow at T=0? What is the cash flow at T=1? What is the cash flow at T=4? What is the NPV of the project?

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