Problem 9-11 Calculating Project Cash Flow from Assets [LO 2] Esfandairi Enterprises is considering a new three-year expansion project that requires an initial fixed asset investment of $2,350,000. The fixed asset will be depreciated straight-line to zero over its three-year tax life. The project is estimated to generate $2,290,000 in annual sales, with costs of $1,310,000. The project requires an initial investment in net working capital of $160,000, and the fixed asset will have a market value of $195,000 at the end of the project. Assume that the tax rate is 21 percent and the required return on the project is 10 percent. a. What are the net cash flows of the project each year? Note: A negative answer should be indicated by a minus sign. Do not round intermediate calculations and round your answers to the nearest whole number, e.g., 32. b. What is the NPV of the project? Note: Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16. a. Year 0 cash flow Year 1 cash flow Year 2 cash flow Year 3 cash flow b. NPV

Problem 9-11 Calculating Project Cash Flow from Assets [LO 2] Esfandairi Enterprises is considering a new three-year expansion project that requires an initial fixed asset investment of $2,350,000. The fixed asset will be depreciated straight-line to zero over its three-year tax life. The project is estimated to generate $2,290,000 in annual sales, with costs of $1,310,000. The project requires an initial investment in net working capital of $160,000, and the fixed asset will have a market value of $195,000 at the end of the project. Assume that the tax rate is 21 percent and the required return on the project is 10 percent. a. What are the net cash flows of the project each year? Note: A negative answer should be indicated by a minus sign. Do not round intermediate calculations and round your answers to the nearest whole number, e.g., 32. b. What is the NPV of the project? Note: Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16. a. Year 0 cash flow Year 1 cash flow Year 2 cash flow Year 3 cash flow b. 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

See similar textbooks

Similar questions

Q. A project requires an initial investment in machinery of $400,000. Additional cash inflows of $150,000 at current price levels are expected for three years, at the end of which time the machinery will be scrapped. The machinery will attract tax-allowable depreciation of 30% on the RB basis, which can be claimed against taxable profits of the current year, which is soon to end. A balancing charge or allowance will arise on disposal. The tax rate is 40% and tax is payable 50% in the current year, 50% one year in arrears. The pre-tax cost of capital is 22% and the rate of inflation is 10%. Assume that the project is 100% debt financed. Required Assess whether the project should be undertaken.
a. Year 0 cash flow Year 1 cash flow Year 2 cash flow Year 3 cash flow b. NPV Down Under Boomerang, Inc., is considering a new three-year expansion project that requires an initial fixed asset investment of $2.97 million. The fixed asset falls into the three-year MACRS class. The project is estimated to generate $2,170,000 in annual sales, with costs of $847,000. The project requires an initial investment in net working capital of $390,000, and the fixed asset will have a market value of $255,000 at the end of the project. a. If the tax rate is 24 percent, what is the project’s Year 1 net cash flow? Year 2? Year 3? Table 8.3. (A negative answer should be indicated by a minus sign. Do not round intermediate calculations and enter your answers in dollars, not millions of dollars, rounded to 2 decimal places, e.g., 1,234,567.89.) b. If the required return is 9 percent, what is the project's NPV? (Enter your answer in dollars, not millions of…
16. A 6-year project is expected to generate annual sales of 8,900 units at a price of $76 per unit and a variable cost of $47 per unit. The equipment necessary for the project will cost $317,000 and will be depreciated on a straight-line basis over the life of the project. Fixed costs are $190,000 per year and the tax rate is 25 percent. How sensitive is the operating cash flow to a $1 change in the per unit sales price? $4,609 $6,007 $4,142 $5,075 $6,675
Question 5. Swad Enterprises is considering a new three-year expansion project that requires an initial fixed asset investment of $2.32 million. The fixed asset will be depreciated straight-line to zero over its three-year tax life, after which time it will be worthless. The project is estimated to generate $1.735 million in annual sales, with costs of $650,000. If the tax rate is 21 percent, what is the OCF for this project? Further, suppose the required return on the project is 12 percent. What is the project’s NPV?
1) Newman Automobiles Manufacturing is considering two alternative investment proposals with the following data: Proposal X Proposal Y Investment $12,000,000 $600,000 Useful life 8 years 8 years Estimated annual net cash inflows for 8 years $2,000,000 $95,000 Residual value $60,000 $30,000 Depreciation method Straight-line Straight-line Required rate of return 12% 10% Calculate Pay back period for Proposal X and Proposal Y.
use excel Phone Home, Inc. is considering a new 5-year expansion project that requires an initial fixed asset investment of $2.484 million. The fixed asset will be depreciated straight-line to zero over its 5-year tax life, after which time it will be worthless. The project is estimated to generate $2,208,000 in annual sales, with annual costs of $883,200. The tax rate is 32 percent and the required return on the project is 11 percent. What is the net present value for this project?
Problem 10-13 Calculating Project OCF (L03) Hubrey Home Inc. is considering a new three - year expansion project that requires an initial fixed asset investment of $41 million. The fixed asset falls into Class 10 for tax purposes (CCA rate of 30% per year), and at the end of the three years can be sold for a salvage value equal to its UCC The project is estimated to generate $ 2,670,000 in annual sales, with costs of $846,000. If the tax rate is 35% what is the OCF for each year of this project? (Enter the answers in dollars. Do not round your intermediate calculations. Round the final answers to 2 decimal places. Omit S sign in your response.) OCH OCF2 OCT
H3. Cirice Corporation is considering opening a branch in another state. The operating cash flow will be $164,500 a year. The project will require new equipment costing $607,000 that would be depreciated on a straight-line basis to zero over the 5-year life of the project. The equipment will have a market value of $187,000 at the end of the project. The project requires an initial investment of $43,500 in net working capital, which will be recovered at the end of the project. The tax rate is 21 percent. What is the project's IRR? Show proper step by step calculation
Question 2Your company is currently considering two investment projects. Each project requires an upfront expenditure of $25 million. You estimate that the cost of capital is 10% and the investments will produce the following after tax cash flows:Year Project A Project B1 $5,000,000 $20,000,0002 $10,000,000 $10,000,0003 $15,000,000 $8,000,0004 $20,000,000 $6,000,000 a) Calculate the payback period for both projects, then compare to identify which project the firm should undertake. b) Evaluate the advantages and disadvantages of using the payback method in investment decisions and assess the situations where it should be used.
1. Management expects a project (see question 48) to generate EBIT of $600,000 per year for 4 years. Depreciation expense is expected to be $225,000 per year and the corporation’s tax rate is 40%. The project will require an increase in net working capital of $50,000 in year one and a decrease in net working capital of $25,000 in year four. The capital expenditure for the project will occur in year zero. What is the free cash flow for the project in year four? 2.. You are given the following information about BioWow Ethanol: common stockholders’ equity = $4 billion; price/earnings ratio = 3.5; common shares outstanding = 50 million; and price/book ratio = 2.0. BioWow is in the 40% tax bracket. Calculate the price of a share of BioWow stock.
A $4 million investment today, in a project to last 10 years, is believed to result in the following incremental cash flows: annual increase in sales of $2,100,000 operating expenses will be 50% of sales there is no NWC investment associated with this project assets purchased for this project are depreciated to zero value using straight-line over the project's complete life market value of assets at end of life are expected to be $0 firm's marginal tax rate is 32% required return on the project is 14% compounded annually What is the IRR of the above project? Note that it has conventional cash flows and positive NPV, therefore IRR must be greater than 0.16.
A $4 million investment today, in a project to last 10 years, is believed to result in the following incremental cash flows: annual increase in sales of $2,100,000 operating expenses will be 50% of sales there is no NWC investment associated with this project assets purchased for this project are depreciated to zero value using straight-line over the project's complete life market value of assets at end of life are expected to be $0 firm's marginal tax rate is 32% required return on the project is 14% compounded annually What is the NPV of this project?

SEE MORE QUESTIONS

Recommended textbooks for you

Essentials Of Investments

Finance

ISBN:

9781260013924

Author:

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

Publisher:

Mcgraw-hill Education,

FUNDAMENTALS OF CORPORATE FINANCE

Finance

ISBN:

9781260013962

Author:

BREALEY

Publisher:

RENT MCG

Financial Management: Theory & Practice

Finance

ISBN:

9781337909730

Author:

Brigham

Publisher:

Cengage

Foundations Of Finance

Finance

ISBN:

9780134897264

Author:

KEOWN, Arthur J., Martin, John D., PETTY, J. William

Publisher:

Pearson,

Fundamentals of Financial Management (MindTap Cou…

Finance

ISBN:

9781337395250

Author:

Eugene F. Brigham, Joel F. Houston

Publisher:

Cengage Learning

Corporate Finance (The Mcgraw-hill/Irwin Series i…

Finance

ISBN:

9780077861759

Author:

Stephen A. Ross Franco Modigliani Professor of Financial Economics Professor, Randolph W Westerfield Robert R. Dockson Deans Chair in Bus. Admin., Jeffrey Jaffe, Bradford D Jordan Professor

Publisher:

McGraw-Hill Education

Essentials Of Investments

Finance

ISBN:

9781260013924

Author:

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

Publisher:

Mcgraw-hill Education,

FUNDAMENTALS OF CORPORATE FINANCE

Finance

ISBN:

9781260013962

Author:

BREALEY

Publisher:

RENT MCG

Financial Management: Theory & Practice

Finance

ISBN:

9781337909730

Author:

Brigham

Publisher:

Cengage

Foundations Of Finance

Finance

ISBN:

9780134897264

Author:

KEOWN, Arthur J., Martin, John D., PETTY, J. William

Publisher:

Pearson,

Fundamentals of Financial Management (MindTap Cou…

Finance

ISBN:

9781337395250

Author:

Eugene F. Brigham, Joel F. Houston

Publisher:

Cengage Learning

Corporate Finance (The Mcgraw-hill/Irwin Series i…

Finance

ISBN:

9780077861759

Author:

Stephen A. Ross Franco Modigliani Professor of Financial Economics Professor, Randolph W Westerfield Robert R. Dockson Deans Chair in Bus. Admin., Jeffrey Jaffe, Bradford D Jordan Professor

Publisher:

McGraw-Hill Education

SEE MORE TEXTBOOKS