Bhupatbhai Problem 9-33 Working Capital (LO4)Better Mousetraps has developed a new trap. It can go into production for an initial investment in equipment of $5.4 million. Theequipment will be depreciated straight-line over 6 years, but, in fact, it can be sold after 6 years for $668,000. The firm believes thatworking capital at each date must be maintained at a level of 15% of next year's forecast sales. The firm estimates production costsequal to $1.60 per trap and believes that the traps can be sold for $6 each. Sales forecasts are given in the following table. The projectwill come to an end in 6 years, when the trap becomes technologically obsolete. The firm's tax bracket is 40%, and the required rate ofreturn on the project is 9%.Year:Sales (millions of traps)120.60.831.041.050.960.6Thereafter0Suppose the firm can cut its requirements for working capital in half by using better inventory control systems. By how much will thisincrease project NPV?Note: Do not round your intermediate calculations. Enter your answer in millions rounded to 4 decimal places.Answer is complete but not entirely correct.Increase in NPV0.0733 million

Part 2: Explanation:Step 1: Calculate the initial investment:The initial investment consists of the…

Answered: Problem 9-33 Working Capital (LO4)…

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

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Problem 9-33 Working Capital (LO4) Better Mousetraps has developed a new trap. It can go into production for an initial investment in equipment of $6.3 million. The equipment will be depreciated straight-line over 6 years, but, in fact, it can be sold after 6 years for $519,000. The firm believes that working capital at each date must be maintained at a level of 10% of next year's forecast sales. The firm estimates production costs equal to $1.20 per trap and believes that the traps can be sold for $5 each. Sales forecasts are given in the following table. The project will come to an end in 6 years, when the trap becomes technologically obsolete. The firm's tax bracket is 40%, and the required rate of return on the project is 10%. Year: Sales (millions of traps) 0 1 2 0 0.5 0.6 3 0.7 4 5 0.7 0.5 6 0.2 Thereafter 0 Suppose the firm can cut its requirements for working capital in half by using better inventory control systems. By how much will this increase project NPV? Note: Do not…
11. I need help with finance home work question A company is considering a 7-year project. At the beginning of the project, a cash outflow in the amount of $340,000 would be required. The company expects the project would generate cash inflows in the amount of $70,000 at the end of each of the project's 7 years. Assume the company requires a return of 8%. What NPV does the company expect for this project?
12 Coyne Corporation is evaluating a capital investment opportunity. This project would require an initial investment of $31,000 to purchase equipment. The equipment will have a residual value at the end of its life of $1,000 The useful life of the equipment is 4 years. The new project is expected to generate additional net cash inflows of $22,000 per year for each of the four years. Coyne's required rate of return is 12% The net present value of this project is closest to (Cack the icon to view the present value of $1 table) (Click the icon to view the present value of annuity of $1 table) OA. 518,656 OB. $35.814 OC. $36,450 OD. $47.734 Data table Present Value of $1 Periods 3 4 5 6 Data table 10% 0.751 0.683 0.621 0.564 Present Value of Annuity of $1 Periods 3 4 5 6 10% 2.487 3.170 3.791 4.355 D D Print 12% 0712 0.636 0.567 0.507 Print 12% 2.402 3.037 3.605 4.111 Done Done 14% 0.675 0592 0.519 0.456 14% 2.322 2.914 3,433 3.889 111 16% 0.641 0.552 0.476 0.410 16% 2.246 2.798 3274…
14. I need help with finance home work question asap please A company is considering a project that would require a cash outflow in the amount of $1,000,000 at the beginning. The company expects the project to generate average annual cash inflows in the amount of $40,000. The average book value for the project is expected to be $250,000 and average annual net income is expected to be $55,000. The company requires a return of 15.25%. What is the average accounting return for this project?
21. An investor is considering the purchase of an office complex. Next year's NOI and cash flow is expected to be $1,000,000 and economic forecast of market supply and demand and vacancy levels will continue to be in balance. As a result NOI should increase by 4 percent each year and the investor believes she should earn 12% total return on the investment. What is the NPV of this investment if the purchase price is $13M? a. -777,778 b. -500,000 c. +500,000 d. 8,333,333 e. Some other amount
# 32 Caspian Sea Drinks is considering buying the J-Mix 2000. It will allow them to make and sell more product. The machine cost $1.77 million and create incremental cash flows of $483,486.00 each year for the next five years. The cost of capital is 8.44%. What is the internal rate of return for the J-Mix 2000? Submit Answer format: Percentage Round to: 2 decimal places (Example: 9.24%, % sign required. Will accept decimal format rounded to 4 decimal places (ex: 0.0924)) unanswered not_submitted Attempts Remaining: Infinity
田 Sentinel Company is considering an investment in technology to improve its operations. The investment will require an initial outlay of $253,000 and will yield the following expected cash flows. Management requires investments to have a payback period of 3 years, and it requires an 8% return on investments. Period Cash Flow 1 $47,400 2 $53,900 3 $76,900 4 $95,400 5 $125,400 Required: 1. Determine the payback period for this investment. 2. Determine the break-even time for this investment. 3. Determine the net present value for this investment.
QUESTION 6 ABC Inc. is evaluating an investment project that lasts for three years. The project has the cost of capital of 15% and requires an initial investment of $2 million. There is a 40% chance that the project would be successful and would generate annual free cash flows of $3 million per year during the next three years. There is a 60% chance that the project would be less successful and would generate only $2 million per year during the next three years. However, ABC recognizes that if the project is successful, it could invest $3 million at the end of the second year to expand the project and receive a free cash flow of $6 million at the end of third year. ABC estimates that the net project value (NPV) of the project without the option to expand and the NPV of the project with the option to expand would be closest to: A. The NPV of the project without the option to expand is $2.57 million and the NPV of the project with the option to expand is $4.85 million B. The NPV of the…
3 NPV and IRR Benson Designs has prepared the following estimates for a long-term project it is considering. The initial investment is $18,250, and the project will yield cash inflows of $4,000 per year for 7 years. The firm has a cost of capital of 10%. a. Determine the net present value (NPV) for the project. b. Determine the internal rate of return (IRR) for the project. c. Would you recommend that the firm accept or reject the project? a. The NPV of the project is $ (Round to the nearest cent.) b. The IRR of the project is%. (Round to two decimal places.) c. Would you recommend that the firm accept the project? (Select the best answer below.) OYes O No
K The owner of a number of gas stations is considering installing coffee machines in his gas stations. It will cost $300,000 to install the coffee machines, and they are expected to boost cash flows by $144,643 per year for their five-year working life. What must the cost of capital be if this investment has a profitability index of 17 OA. 6.57% OB. 3.28 % OC. 13.13% OD. 16.42%
A mining company plans to mine a beach for rutile. To do so will cost $14 million up front and then produce cash flows of $7 million per year for five years. At the end of the sixth year the company will incur shut-down and clean-up costs of $6 million. If the cost of capital is 12%, then what is the MIRR for this project? O A. 21.53% В. 13.7% C. 17.62% D. 19.57%
Question 2 A firm is considering an investment project that has a cost of $1 million and is expected to generate an annual after-tax cash flow of $250,000 for five years. It has already spent $25,000 in research and development (R&D) costs for the project. If the firm's required rate of return is 14 percent and consider R&D a sunck cost, what is the NPV of this project? A $25,000 B -$141,750 C +141,750 D $858,250

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