A dairy farm project has an initial requirement of $600,000 for fixed assets (i.e. goats) and $60,000 for net working capital. The price of their special goat cheese packages are $30.00 with a variable cost of $20.00 per package. The goats will be depreciated to a zero book value over the 3-year life of the project and will be worthless at the end of the project because the dairy farmer plans to give the goats away as pets. All of the net working capital will be recouped after 3 years. The expected annual operating cash flow is $240,000. What is the project's internal rate of return if the tax rate is 35 percent? Group of answer choices 8.00 percent 8.50 percent 9.00 percent 9.50 percent 10.00 percent

A dairy farm project has an initial requirement of $600,000 for fixed assets (i.e. goats) and $60,000 for net working capital. The price of their special goat cheese packages are $30.00 with a variable cost of $20.00 per package. The goats will be depreciated to a zero book value over the 3-year life of the project and will be worthless at the end of the project because the dairy farmer plans to give the goats away as pets. All of the net working capital will be recouped after 3 years. The expected annual operating cash flow is $240,000. What is the project's internal rate of return if the tax rate is 35 percent? Group of answer choices 8.00 percent 8.50 percent 9.00 percent 9.50 percent 10.00 percent

Managerial Accounting

15th Edition

ISBN:9781337912020

Author:Carl Warren, Ph.d. Cma William B. Tayler

Publisher:Carl Warren, Ph.d. Cma William B. Tayler

Chapter12: Capital Investment Analysis

Section: Chapter Questions

Problem 21E: Net present value-unequal lives Bunker Hill Mining Company has two competing proposals: a processing...

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Question 15 A dairy farm project has an initial requirement of $600,000 for fixed assets (i.e. goats) and $60,000 for net working capital. The price of their special goat cheese packages are $30.00 with a variable cost of $20.00 per package. The goats will be depreciated to a zero book value over the 3-year life of the project and will be worthless at the end of the project because the dairy farmer plans to give the goats away as pets. All of the net working capital will be recouped after 3 years. The expected annual operating cash flow is $240,000. If the tax rate is 35 percent, how sensitive is OCF to an increase of ten additional goat cheese packages sold? Group of answer choices $3.50 $6.50 $35.00 $65.00 $100.00
QUESTION 2 You are considering starting a new factory producing small electric heaters. Each unit will sell at a price of $65. The production cost of each heater is $50. The fixed cost of production is $58000. This project has an economic life of 11 years. The project requires an investment of $440000 in plants and equipment. This equipment will be depreciated using a straight line depreciation method to a salvage value of zero. The required rate of return for the project is 10.5 percent. The marginal corporate tax rate is 22 percent. Based on these assumptions, calculate the number of units of production at the accounting (net profit) break-even point. O 6133.33 O 6782.3 O 6533.33 O 6543
QUESTION 8 You are considering starting a new factory producing small electric heaters. Each unit will sell at a price of $120. The production cost of each heater is $90. The fixed cost of production is $35000. This project has an economic life of 5 years. The project requires an investment of $125000 in plants and equipment. This equipment will be depreciated using a straight line depreciation method to a salvage value of zero. The required rate of return for the project is 12 percent. The marginal corporate tax rate is 21 percent. Based on these assumptions, calculate the number of units at the operating cash flow break-even point.
QUESTION 5 You are considering starting a new factory producing small electric heaters. Each unit will sell at a price of $120. The production cost of each heater is $90. The fixed cost of production is $35000. This project has an economic life of 5 years. The project requires an investment of $125000 in plants and equipment. This equipment will be depreciated using a straight-line depreciation method to a salvage value of zero. The required rate of return for the project is 12 percent. The marginal corporate tax rate is 21 percent. Based on these assumptions, calculate the number of units of production at the net present value (financial) break-even point.
Question 12 Outdoor Sports is considering adding a miniature golf course to its facility. The course would require a $138,000 loan with annual interest of $6,000, and the course would be depreciated on a straight line basis over its 5-year life with a zero salvage value. The estimated income from the golfing fees would be $72,000 a year with $24,000 of that amount being variable cost. The fixed cost would be $11,600. In addition, the firm anticipates an additional $14,000 in revenue from its existing facilities if the golf course is added. However, the firm expects its driving range income will decrease by $9,000 each year since the golf course across town closed down. The project will require $3,000 of net working capital, which is recoverable at the end of the project. If Outdoor Sports has a tax rate of 34 percent and a discount rate of 12 percent, what is the net present value of this project? Hint: Get operational cash flow first. Group of answer choices $11,309…
QUESTION 6 You are considering starting a new factory producing small electric heaters. Each unit will sell at a price of $120. The production cost of each heater is $90. The fixed cost of production is $35000. You are expecting to sell 3000 units per year. This project has an economic life of 5 years. The project requires an investment of $125000 in plants and equipment. This equipment will be depreciated using a straight line depreciation method to a salvage value of zero. The required rate of return for the project is 12 percent. The marginal corporate tax rate is 21 percent. Based on these assumptions, calculate the degree of operating leverage (DOL)?
QUESTION 6 You are considering starting a new factory producing small electric heaters. Each unit will sell at a price of $55. The production cost of each heater is $35. You are expecting to sell 9000 units per year. This project has an economic life of 6 years. The project requires an investment of $700000 in plants and equipment. This equipment will be depreciated to zero salvage value based on 5-year MACRS schedule. The depreciation rates from year 1 to 6 are 20 %,32 %, 19.2 %, 11.52 %, 11.52 %, and 5.76 percent, respectively. The required rate of return for the project is 12 percent, the working capital requirement is 10 percent of the next year's sales revenue. The company will sell its old equipment for $100,000. The old machine is fully depreciated. The marginal corporate tax rate is 20 percent. At the termination of the project, the plant and equipment will be sold for an estimated value of $50000. Based on these assumptions, estimate the internal rate of return for this…
Engineering economy - ENGR 3322 A new municipal refuse-collection truck can be purchased for $84,000. Its expected useful life is six years, at which time its market value will be zero. Annual receipts less expenses will be approximately $18,000 per year over the six-year study period. At MARR of 19%, calculate the internal rate of return of the project a. 7% b. 8% c. 9% d. None of the choices
QUESTION 2 You are considering starting new factory producing small electric heaters. Each unit will sell at a price of $55. The production cost of each heater is $35. You are expecting to sell 9000 units per year. This project has an economic life of 6 years. The project requires an investment of $700000 in plants and equipment. This equipment will be depreciated to zero salvage value based on 5-year MACRS schedule. The depreciation rates from year 1 to 6 are 20 % ,32 %, 19.2 %, 11.52 %, 11.52 %, and 5.76 percent, respectively. The required rate of return for the project is 12 percent, the working capital requirement is 10 percent of the next year's sales revenue. The company will sell its old equipment for $100,000. The old machine is fully depreciated. The marginal corporate tax rate is 20 percent. At the termination of the project, the plant and equipment will be sold for an estimated value of $50000. Based on these assumptions, estimate the working capital requirements for the…
Problem 3 A piping contractor is considering the purchase of a number of pipe laying machines for a project that will last for 6 years. Each machine will cost $ 50,000.00 and have no salvage value at the end of the project. In determining whether to make this purchase, straight line deprecation can be used and an annual income tax on profits of of 34%, and an after-tax MARR is 8%. What is the minimum annual net benefit before taxes that must be generated by the each machine in order to justify its purchase? Answer:
#24 * Using NPW to Decide Between Competing Projects: Machine X has an initial cost of $12,000 and annual maintenance of $700 per year. It has a useful life of four years and no salvage value at the end of that time. Machine Y costs $22,000 initially and has no maintenance costs during the first year. Maintenance is $200 at the end of the second year and increases by $200 per year thereafter. Machine Y has a useful life of eight years and an anticipated salvage value of $5,000 at the end of its useful life. If the MARR is 6%, what is the approximate Net Present Worth (NPW) of machine Y? A. -$33,015 B. -$23,781 C. -$22,831 D. -$19,365
QUESTION 3 You are considering starting a new factory producing small electric heaters. Each unit will sell at a price of $55. The production cost of each heater is $35. You are expecting to sell 9000 units per year. This project has an economic life of 6 years. The project requires an investment of $700000 in plants and equipment. This equipment will be depreciated to zero salvage value based on 5-year MACRS schedule. The depreciation rates from year 1 to 6 are 20 % ,32 %, 19.2 %, 11.52 %, 11.52 %, and 5.76 percent, respectively. The company will sell its old equipment for $100,000. The old machine is fully depreciated. The required rate of return for the project is 12 percent, the working capital requirement is 10 percent of the next year's sales revenue. The marginal corporate tax rate is 20 percent. At the termination of the project, the plant and equipment will be sold for an estimated value of $50000. Based on these assumptions, estimate the cash flow for capital expenditures.…