Which company(ies), if either, should open the Chicago store?
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Bruceton's is a specialty retailer with multiple brick-and - mortar stores and a cost of capital of 16.4 percent. Specialty Imports is a wholesaler of specialty items and has a cost of capital of 12.6 percent. Both firms are considering opening a new store in downtown Chicago at a cost of $1.1 million. Because this type of store would be trendy, it would have a life of only 8 years and no salvage value. The expected annual net
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- Talbot Industries is considering launching a new product. The new manufacturing equipment will cost $17 million, and production and sales will require an initial $5 million investment in net operating working capital. The company’s tax rate is 25%. What is the initial investment outlay? The company spent and expensed $150,000 on research related to the new product last year. What is the initial investment outlay? Rather than build a new manufacturing facility, the company plans to install the equipment in a building it owns but is not now using. The building could be sold for $1.5 million after taxes and real estate commissions. What is the initial investment outlay?Each of the following scenarios is independent. All cash flows are after-tax cash flows. Required: 1. Patz Corporation is considering the purchase of a computer-aided manufacturing system. The cash benefits will be 800,000 per year. The system costs 4,000,000 and will last eight years. Compute the NPV assuming a discount rate of 10 percent. Should the company buy the new system? 2. Sterling Wetzel has just invested 270,000 in a restaurant specializing in German food. He expects to receive 43,470 per year for the next eight years. His cost of capital is 5.5 percent. Compute the internal rate of return. Did Sterling make a good decision?eEgg is considering the purchase of a new distributed network computer system to help handle its warehouse inventories. The system costs $50,000 to purchase and install and $32,000 to operate each year. The system is estimated to be useful for 4 years. Management expects the new system to reduce the cost of managing inventories by $58,000 per year. The firm’s cost of capital (discount rate) is 11%. a.The firm is not yet profitable and therefore pays no income taxes. b.The firm is in the 26% income tax bracket and uses straight-line (SLN) depreciation with no salvage value. Assume MACRS rules do not apply. c. The firm is in the 26% income tax bracket and uses double-declining-balance (DDB) depreciation with no salvage value. Given a four-year life, the DDB depreciation rate is 50% (i.e., 2 × 25%). In year four, record depreciation expense as the net book value (NBV) of the asset at the start of the year. 1. What is the internal rate of return (IRR) of the proposed investment for…
- Moxabl Inc. plans to buy land and build an assembly line for its expansion. The anticipated total cost of the land and structures is $0.65 million. The founder-owners of the company are reluctant to borrow money and prefer to set aside savings from profits to cover the cost. Management believes that the firm can set aside $650,000 a month to accumulate the capital necessary for this investment. The firm can earn 8 percent compounded monthly on the funds it saves. How long will it take for the firm to have sufficient capital to invest in this expansion? Assume that the cost of expansion remains constant over time.Kingbird Bottling Corporation is considering the purchase of a new bottling machine. The machine would cost $200,000 and has an estimated useful life of eight years with zero salvage value. Management estimates that the new bottling machine willprovide net annual cash flows of $39,500. Management also believes that the new machine will save the company money because it is expected to be more reliable than other machines, and thus will reduce downtime. Assume a discount rate of 12%. Click here to view the factor table. Calculate the net present value. (lf the net present value is negative, use either a negative sign preceding the number e.g. -45 or parentheses e.g. (45). For calculation purposes, use 5 decimal places as displayed in the factor table provided, e.8. 1.25124. 5 Round present value answer to 0 decimal places, e.8. 1,250.) 1. net present value? 2. How much would the reduction in downtime have to be worth in order for the project to be acceptable? Present value of reduction…Caine Bottling Corporation is considering the purchase of a new bottling machine. The machine would cost $180,000 and has an estimated useful life of 8 years with zero salvage value. Management estimates that the new bottling machine will provide net annual cash flows of $34,000. Management also believes that the new bottling machine will save the company money because it is expected to be more reliable than other machines, and thus will reduce downtime. Assume a discount rate of 12%. Click here to view the factor table. Calculate the net present value. (If the net present value is negative, use either a negative sign preceding the number eg -45 or parentheses eg (45). For calculation purposes, use 5 decimal places as displayed in the factor table provided. Round present value answer to 0 decimal places, e.g. 125.) Net present value $ How much would the reduction in downtime have to be worth in order for the project to be acceptable? (Round answer to O decimal places, e.g. 125.)
- Caine Bottling Corporation is considering the purchase of a new bottling machine. The machine would cost $180,000 and has an estimated useful life of 8 years with zero salvage value. Management estimates that the new bottling machine will provide net annual cash flows of $34,000. Management also believes that the new bottling machine will save the company money because it is expected to be more reliable than other machines, and thus will reduce downtime. Assume a discount rate of 12%. Click here to view the factor table. Calculate the net present value. (If the net present value is negative, use either a negative sign preceding the number eg-45 or parentheses eg (45). For calculation purposes, use 5 decimal places as displayed in the factor table provided. Round present value answer to O decimal places, e.g. 125.) Net present value $ How much would the reduction in downtime have to be worth in order for the project to be acceptable? (Round answer to O decimal places, e.g. 125.)eEgg is considering the purchase of a new distributed network computer system to help handle its warehouse inventories. The system costs $55,000 to purchase and install and $32,000 to operate each year. The system is estimated to be useful for 4 years. Management expects the new system to reduce the cost of managing inventories by $61,500 per year. The firm’s cost of capital (discount rate) is 11%. Required: 1. What is the net present value (NPV) of the proposed investment under each of the following independent situations? (Use the appropriate present value factors from Appendix C, TABLE 1 and Appendix C, TABLE 2.) 1a. The firm is not yet profitable and therefore pays no income taxes. 1b. The firm is in the 30% income tax bracket and uses straight-line (SLN) depreciation with no salvage value. Assume MACRS rules do not apply. 1c. The firm is in the 30% income tax bracket and uses double-declining-balance (DDB) depreciation with no salvage value. Given a four-year life, the DDB…es eEgg is considering the purchase of a new distributed network computer system to help handle Its warehouse Inventories. The system costs $55,000 to purchase and install and $32,000 to operate each year. The system is estimated to be useful for 4 years. Management expects the new system to reduce the cost of managing Inventories by $60,000 per year. The firm's cost of capital (discount rate) is 10%. Required: 1. What is the net present value (NPV) of the proposed Investment under each of the following Independent situations? (Use the appropriate present value factors from Appendix C, TABLE 1 and Appendix C. TABLE 2.) 1a. The firm is not yet profitable and therefore pays no income taxes. 1b. The firm is in the 22% Income tax bracket and uses straight-line (SLN) depreciation with no salvage value. Assume MACRS rules do not apply. 1c. The firm is in the 22% Income tax bracket and uses double-declining-balance (DDB) depreciation with no salvage value. Given a four-year life, the DDB…
- Caine Bottling Corporation is considering the purchase of a new bottling machine. The machine would cost $187,400 and has an estimated useful life of 8 years with zero salvage value. Management estimates that the new bottling machine will provide net annual cash flows of $35,400. Management also believes that the new bottling machine will save the company money because it is expected to be more reliable than other machines, and thus will reduce downtime. Assume a discount rate of 12%. Click here to view PV table. Calculate the net present value. (If the net present value is negative, use either a negative sign preceding the number eg -45 or parentheses eg (45). For calculation purposes, use 5 decimal places as displayed in the factor table provided. Round present value answer to 0 decimal places, e.g. 125.) Net present value $ How much would the reduction in downtime have to be worth in order for the project to be acceptable? (Round answer to 0 decimal places, e.g. 125.) $ %24Cheryl Druehl needs to purchase a new milling machine. She is considering two different competing machines. Milling Machine A will cost $300,000 and will return $80,000 peryear for 6 years, with no sa lvage value. Milling machine B will cost $220,000 and will return $60,000 for 5 years, with a salvage value of $30,000. The firm is currently using 7% as the cost of capital. Using net present value as the criterion, which machine should be purchased?Rose Apothecary is considering expanding its business to include a second store. David Rose, the CEO, believes that a marketing study would help to determine the overall demand for the store. Part A: Without the marketing study, the company estimates that there will be an up-front cost of $100,000 to get the new store up and running. The expectation is that there is a 50% chance that the store will generate annual cash flows of $48,000 per year for the subsequent four years and a 50% chance that the store will generate annual cash flows of $22,000 per year for the subsequent four years. What is the NPV of the store expansion project, assuming a 15% cost of capital?
