The Province of Manitoba will commence a large infrastructure project worth $$60 million. It will be built over a two-year period, with expected costs of $10 million today, $25 million at the end of first year, and $25 million in the second year. The expected operating life of the infrastructure is 15 years, and the expected net revenue (before tax) is $5 million each year. The after-tax MARR is 10%. The tax rate is 35% and the CCA rate is 30%. There is no salvage value to the project after 15 years. a.) Compute the before-tax Present Worth (or cost) of the project. [whole dollar] b.) Compute the after-tax Present Worth (or cost) of the project. [whole dollar]
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- A firm has the opportunity to invest in a project having an initial outlay of $20,000. Net cash inflows (before depreciation and taxes) are expected to be $5,000 per year for five years. The firm uses the straight-line depreciation method with a zero salvage value and has a (marginal) income tax rate of 40 percent. The firms cost of capital is 12 percent. Compute the IRR and the NPV. Should the firm accept or reject the project?A process plant making 5000kg /day of a product selling for $1.75 per kg has annual directproduction costs of $2 million at 100 percent capacity and other fixed costs of $700,000. What isthe fixed charge per kg at the break-even point? If the selling price of the product is increased by10 percent, what is the dollar increase in net profit at full capacity if the income tax rate is 35percent of gross earnings?Hajia Timber Ltd (GTL) produces and exports lumber and planks. It owns a plant whichhas value of GHC 1,800,000 as at 1 January 2010. The government of Ghana,passes alegislation that restricts the exportation of lumber. Consequently GTL has to reduceproduction by 40%. Cash flow forecast for the next five years included in the budgetsubmitted for management approval in January 2010 shows the following:Year Cash flows (GHC)2010 552,0002011 506,0002012 376,0002013 250,0002014 560,000The cashflow forecast for 2014 includes expected proceeds from disposal of the plant. Thecash flow projections also ignore the effects general upwards movement in prices.It is estimated that if the plant is sold in January 2010, it would realize the net proceeds ofGHC 1,320,000. The costs of capital for GBL is 15% (ignoring inflationary effect)RequiredCalculate the recoverable amount of the plant and impairment loss (if any).
- Project A Project B Initial cash outlay $180,000 $160,000 Annual depreciation $25,000 $20,000 Annual net cash inflow $50,000 $40,000 after tax Expected salvage $0 $0 value Projects A and B are to be evaluated using the payback period and the unadjusted rate of return. State which project should be accentedAn investment of $1.000.000 will be included in the 7-year MACRS class for depreciation. It would also require an additional $150,000 to invest in inventory and would add $50,000 to accounts payable. Will generate $400000 in revenue and $150000 in cash expenses annually. The tax rate is 21 per cent. What are the incremental cash flows for years 0, 1, 7 and 8?How do you calculate the PVIFA for the equation: EAC = NPV / Annutiy factor How would you use the financial calculator to solve for EAC and PVIFA? You are evaluating two different silicon wafer milling machines. The Techron I costs $270,000, has a three-year life, and has pre-tax operating costs of $69,000 per year. The Techron II costs $475,000, has a five-year life, and has pre-tax operating costs of $36,000 per year. Both milling machines are in Class 8 (CCA rate of 20 percent per year). Assume a salvage value of $45,000. If your tax rate is 35 percent and your discount rate is 10 percent, compute the EAC for both machines. Which do you prefer? Why?
- A manufacturing company is evaluating an investment plan to produce a new product based on the following estimated data: • Equipment Cost: $150,000 • Overhead Cost: $30,000/year • Sales price: $12/unit Operation cost: $20/operating hour • Production time: O.1 hour/unit • Planning horizon: 4 years • MARR: 15% Salvage value after 4 years: 0 By using break-even analysis, the break-even sales value for the product should be: Select one: a. 6755 units X b. 8255 units C. 9755 units d. 11,255 units The correct answer is: 8255 unitsA proposed project will require the immediate investment of $50,000 and is estimated to have year-end revenues and costs as follows: Year Revenue Costs 1 2 3 4 5 $ 75,000 90,000 100,000 95,000 60,000 $ 60,000 77,500 75,000 80,000 47,500 An additional investment of $20,000 will be required at the end of the second year. The project would terminate at the end of the 5th year, and the assets are estimated to have a salvage value of $25,000 at the time. Solve for the IRR of the project by PW using 15% and 16% rates. A. 15.68% B. 15.28% C. 15.88% D. 15.48%Q2) The two projects as part of oil industrial their cash flows in tables belwo: project B: r=8% cash flow (CF) project A:r=8% year cash flow (CF) -398 -242 1 120 105 2 175 105 280 115 Required: a) Find NPV for both project on base of r = 8%? b) Find the required IRR for both project and evaluate them based on this proceuder? Let the required IRR on range (10-20)%? c) Evaluate the mentioned project by using Pl during r=8%? %3D
- A person considers an inversion that saves 100,000 a year. annual taxes equal to 2% of its value per year annual maintenance expenses equivalent to 3% of its value lifespan of 5 years, no salvage value WIth a Depreciation using the straight line method what is the maximum you should pay for this investment? pays interest contributions 40% MARR9% a person wants to save for the university they will be attending in 5 years. Today annual tuition costs 20,000. If you can make investments that yield 8% and the inflation rate of 5%, how much should you save per year for the next 4 years to pay for a tuition year that increases according to general inflation?Acme Food Co. Ltd. is considering the introduction of a new product Smackers. The firm has gathered and provided your group the following information relevant to the project: Initial fixed capital outlay: $135,000 Initial working capital outlay: $10,800 Life of the project: 8 years Capital recovery at project end: fixed $20,000; working $8,200 Sales units forecast: 70,000 units in year one, growing at 7.00 % per annum thereafter Unit selling price: $3.75 Unit production cost: $1.78 Annual fixed overhead cost: $45,000 Annual tax rate of depreciation claimable: 20% per annum Annual income tax rate: 35% Required rate of return: 9 % per annum. Acme proposes to use $50,000 of its own funds which can provide an alternative investment return of 7% and take a Current Account loan for the rest of the needed capital outlay at 11% per annum. Surplus cash flows can be invested at 6% or used to redeem the loan. Using the data provided: (a) Calculate an NPV for the project under the given base-case…Unequal Lives The Perez Company has the opportunity to invest in one of two mutually exclusive machines that will produce a product it will need for the foreseeable future. Machine A costs $9 million but realizes after-tax inflows of $3.5 million per year for 4 years. After 4 years, the machine must be replaced. Machine B costs $14 million and realizes after-tax inflows of $3 million per year for 8 years, after which it must be replaced. Assume that machine prices are not expected to rise because inflation will be offset by cheaper components used in the machines. The cost of capital is 8%. Using the replacement chain approach to project analysis, by how much would the value of the company increase if it accepted the better machine? Do not round intermediate calculations. Enter your answer in millions. For example, an answer of $1.23 million should be entered as 1.23, not 1,230,000. Round your answer to two decimal places. million What is the equivalent annual annuity for each machine?…