sac.3 A new electronic process monitor costs $990,000. This cost could be depreciated at 30% per year (Class 10). The monitor wouldactually be worth $100,000 in five years. The new monitor would save $460,000 per year before taxes and operating costs. Supposethe new monitor requires us to increase net working capital by $47,200 when we buy it. If we require a 15% return, what is the NPV ofthe purchase? Assume a tax rate of 40%. (Do not round intermediate calculations. Round the final answer to 2 decimal places. Omit$ sign in your response.)NPV$

The objective of this question is to calculate the Net Present Value (NPV) of the purchase of a new…

Answered: A new electronic process monitor costs…

EBK CONTEMPORARY FINANCIAL MANAGEMENT

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter9: Capital Budgeting And Cash Flow Analysis

Section: Chapter Questions

Problem 5P

See similar textbooks

Similar questions

Mason, Inc., is considering the purchase of a patent that has a cost of $85000 and an estimated revenue producing lite of 4 years. Mason has a required rate of return that is 12% and a cost of capital of 11%. The patent is expected to generate the following amounts of annual income and cash flows: A. What is the NPV of the investment? B. What happens if the required rate of return increases?
Gina Ripley, president of Dearing Company, is considering the purchase of a computer-aided manufacturing system. The annual net cash benefits and savings associated with the system are described as follows: The system will cost 9,000,000 and last 10 years. The companys cost of capital is 12 percent. Required: 1. Calculate the payback period for the system. Assume that the company has a policy of only accepting projects with a payback of five years or less. Would the system be acquired? 2. Calculate the NPV and IRR for the project. Should the system be purchasedeven if it does not meet the payback criterion? 3. The project manager reviewed the projected cash flows and pointed out that two items had been missed. First, the system would have a salvage value, net of any tax effects, of 1,000,000 at the end of 10 years. Second, the increased quality and delivery performance would allow the company to increase its market share by 20 percent. This would produce an additional annual net benefit of 300,000. Recalculate the payback period, NPV, and IRR given this new information. (For the IRR computation, initially ignore salvage value.) Does the decision change? Suppose that the salvage value is only half what is projected. Does this make a difference in the outcome? Does salvage value have any real bearing on the companys decision?
The Rodriguez Company is considering an average-risk investment in a mineral water spring project that has an initial after-tax cost of 170,000. The project will produce 1,000 cases of mineral water per year indefinitely, starting at Year 1. The Year-1 sales price will be 138 per case, and the Year-1 cost per case will be 105. The firm is taxed at a rate of 25%. Both prices and costs are expected to rise after Year 1 at a rate of 6% per year due to inflation. The firm uses only equity, and it has a cost of capital of 15%. Assume that cash flows consist only of after-tax profits because the spring has an indefinite life and will not be depreciated. a. What is the present value of future cash flows? (Hint: The project is a growing perpetuity, so you must use the constant growth formula to find its NPV.) What is the NPV? b. Suppose that the company had forgotten to include future inflation. What would they have incorrectly calculated as the projects NPV?
If a copy center is considering the purchase of a new copy machine with an initial investment cost of $150,000 and the center expects an annual net cash flow of $20,000 per year, what is the payback period?
Caduceus Company is considering the purchase of a new piece of factory equipment that will cost $565,000 and will generate $135,000 per year for 5 years. Calculate the IRR for this piece of equipment. For further instructions on internal rate of return In Excel, see Appendix C.
Gardner Denver Company is considering the purchase of a new piece of factory equipment that will cost $420,000 and will generate $95,000 per year for 5 years. Calculate the IRR for this piece of equipment. For further Instructions on internal rate of return in Excel, see Appendix C.
A new electronic process monitor costs $990,000. This cost could be depreciated at 30% per year (Class The monitor would actually be worth $100,000 in five years. The new monitor would save $460,000 per year before taxes and operating costs. Suppose the new monitor requires us to increase net working capital by $47,200 when we buy it. If we require a 15% return, what is the NPV of the purchase? Assume a tax rate of 40%. (Do not round intermediate calculations. Round the final answer to 2 decimal places. Omit $ sign in your response.)
A new electronic process monitor costs $990,000. This cost could be depreciated at 30% per year (Class 10). The monitor would actually be worth $100,000 in five years. The new monitor would save $460,000 per year before taxes and operating costs. Suppose the new monitor requires us to increase net working capital by $47,200 when we buy it. If we require a 15% return, what is the NPV of the purchase? Assume a tax rate of 40%. (Do not round intermediate calculations. Round the final answer to 2 decimal places. Omit $ sign in your response.) NPV $194719.60
A new electronic process monitor costs $990,000. This cost could be depreciated at 30% per year (Class 10). The monitor would actually be worth $100,000 in five years. The new monitor would save $460,000 per year before taxes and operating costs. The new monitor requires us to increase net working capital by $47,200 when we buy it. Assume a tax rate of 40% and a 15% return. a. Suppose the monitor was assigned a 25% CCA rate. Calculate the new NPV. (Do not round intermediate calculations. Round the final answer to 2 decimal places. Omit $ sign in your response.) ***NOTE*** Hello, I found an answer key saying the answer is $180,108.50. Hopefully this helps for reference when solving for it. Thanks:)
A new electronic process monitor costs $990,000. This cost could be depreciated at 30% per year (Class 10). The monitor would actually be worth $100,000 in five years. The new monitor would save $460,000 per year before taxes and operating costs. The new monitor requires us to increase net working capital by $47,200 when we buy it. Assume a tax rate of 40%. a. If we require a 15% return, what is the NPV of the purchase? (Do not round intermediate calculations. Round the final answer to 2 decimal places. Omit $ sign in your response.) NPV $ b. Suppose the monitor was assigned a 25% CCA rate. Calculate the new NPV. (Do not round intermediate calculations. Round the final answer to 2 decimal places. Omit $ sign in your response.) NPV S C. Will the NPV at 25% CCA rate be larger or smaller? multiple choice Smaller Larger
A new machine will cost $400,000 and generate after-tax cash inflows of $50,000 for 12 years. Find the NPV if the firm uses a 11% opportunity cost of capital. What is the IRR? What is the payback period? (5’)
A corporation is considering purchasing a machine that costs $120,000 andwill save $X per year after taxes. The cost of operating the machine, including maintenance and depreciation, is $20,000 per year after taxes. The machine will be needed for four years after which it will have a zero salvage value. If the firm wants a 14% rate of return after taxes, what is the minimum after-tax annual savings that must be generated to realize a 14% rate of return after taxes?(a) $50,000(b)$61,184(c) $91,974(d) $101,974

SEE MORE QUESTIONS

Recommended textbooks for you

EBK CONTEMPORARY FINANCIAL MANAGEMENT

Finance

ISBN:

9781337514835

Author:

MOYER

Publisher:

CENGAGE LEARNING - CONSIGNMENT

Principles of Accounting Volume 2

Accounting

ISBN:

9781947172609

Author:

OpenStax

Publisher:

OpenStax College

Financial Management: Theory & Practice

Finance

ISBN:

9781337909730

Author:

Brigham

Publisher:

Cengage

EBK CONTEMPORARY FINANCIAL MANAGEMENT

Finance

ISBN:

9781337514835

Author:

MOYER

Publisher:

CENGAGE LEARNING - CONSIGNMENT

Principles of Accounting Volume 2

Accounting

ISBN:

9781947172609

Author:

OpenStax

Publisher:

OpenStax College

Financial Management: Theory & Practice

Finance

ISBN:

9781337909730

Author:

Brigham

Publisher:

Cengage

Managerial Accounting: The Cornerstone of Busines…

Accounting

ISBN:

9781337115773

Author:

Maryanne M. Mowen, Don R. Hansen, Dan L. Heitger

Publisher:

Cengage Learning

Excel Applications for Accounting Principles

Accounting

ISBN:

9781111581565

Author:

Gaylord N. Smith

Publisher:

Cengage Learning

Cornerstones of Cost Management (Cornerstones Ser…

Accounting

ISBN:

9781305970663

Author:

Don R. Hansen, Maryanne M. Mowen

Publisher:

Cengage Learning

SEE MORE TEXTBOOKS