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 straight- line 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
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 straight- line 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
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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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
Transcribed Image Text: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 straight-
line 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
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