Assume that the initial outlay and depreciable base for a new project is 100,000. It is a 3 year asset for tax purposes and the tax rate is 30% the project is expected revenue by 25,000 each year for the next four years and then the asset will be sold at the end of year four for 5000. Assuming a discount rate of 5% What is the NPV of this project? Assume there is a 30% chance that the discount rate will actually be 10% a 50% chance that it will be 5% and a 20% chance that it will be 4%. What is the weighted average NPV? Would you accept this project? Explain your answers and document your calculations. B IVA LE x 12pt Paragraph 6

Assume that the initial outlay and depreciable base for a new project is 100,000. It is a 3 year asset for tax purposes and the tax rate is 30% the project is expected revenue by 25,000 each year for the next four years and then the asset will be sold at the end of year four for 5000. Assuming a discount rate of 5% What is the NPV of this project? Assume there is a 30% chance that the discount rate will actually be 10% a 50% chance that it will be 5% and a 20% chance that it will be 4%. What is the weighted average NPV? Would you accept this project? Explain your answers and document your calculations. B IVA LE x 12pt Paragraph 6

Name: 8 ASsume that the initial outlay and depreciable base for a new projec
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Description: 8 ASsume that the initial outlay and depreciable base for a new project is 100,000. It is a 3 year asset for tax purposes and the tax rate is 30%, the project is expected to increaserevenue by 25,000 each year for the next four years and then the ass

Financial Management: Theory & Practice

16th Edition

ISBN:9781337909730

Author:Brigham

Publisher:Brigham

Chapter11: Cash Flow Estimation And Risk Analysis

Section: Chapter Questions

Problem 8P: The Rodriguez Company is considering an average-risk investment in a mineral water spring project...

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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?
Let's say you have a project which will cost $25mm to build or buy. It will produce after-tax cash flows of $4mm for 9 years with each cash flow occurring at the end of the year. At the end of the 9 years, you will also receive a residual value payment of $3mm after tax. What is the IRR of the project? Round to the nearest one decimal place and use the % symbol. 5.4% would be the form of a correct answer. __________________________
Let's say you have a project which will cost $25mm to build or buy. It will produce after-tax cash flows of $4mm for 9 years with each cash flow occurring at the end of the year. At the end of the 9 years, you will also receive a residual value payment of $3mm after tax. What is the IRR of the project? Round to the nearest one decimal place and use the % symbol. 5.4% would be the form of a correct answer. Question 53 options:
A project requires an initial investment of $6 million and will yield operating cash flows of $1.5 million per year for the next 10 years. At the end of 10 years, the project’s assets can be divested for $350,000. The marginal tax rate is 35%, and the CCA rate is 30%. If the required rate of return is 15%, what is the present value of the CCA tax shields? Select one: a. $1,329,042.73 b. $1,308,432.91 c. $1,288,508.90 d. $1,210,537.92 e. $1,049,551.30
Assume that it costs $1,000 to start a project. If the project will give $400 profit in the first year, $500 in the second year and $300 in the third year. find the payback period. Now assume that the interest rate is 10%, find the net present value (NPV) and the profitability index (PI) for this project
You can make an investment that will immediately cost $52,000. If you make the investment, your after-tax operating profit will be $13,000 per year for five years. After the five years, the profit will be zero, and the scrap value also will be zero. You will finance the investment with internally generated funds and receive the profit at the end of each year. The net present value equation for this investment is: NPV=$| (Carefully enter your answer as an algebraic expression, using the proper notation in the proper format. Do not use the letter x to denote the multiplication sign.)
A project that requires an initial investment of $340,000 is expected to have an after-tax cash flow of $70,000 per year for the first two years, $90,000 per year for the next two years, and $150,000 for the fifth year? Assume the required return for this project is 10%. Use formula solve Please!!!a. What is the NPV of the project? b. What is the IRR of the project? c. What is the MIRR of the project? d. What is the PI of the project?
Assume that it costs $1000 to start a project. If the project will give $400 profit in the first year, $500 in the second year and $300 in the third year, find the pay back period. Now assume that the interest rate is 10%, find the net present value (NPV) and the profitable index (PI) for this project.
Your firm has a potential project that will cost $5,000 now to begin. The project will then generate after-tax cash flows of • $402 at the end of the next three years and then $1,867 per year for the three years after that. If the discount rate is 8.55% then what is the NPV?
You are evaluating purchasing the rights to a project that will generate after tax expected operating cash flows of $91k at the end of each of the next five years, plus an additional $1,000k non-operating terminal period cash flow at the end of the fifth year. You can purchase this project for $531k. If your firm's cost of capital (aka required rate of return) is 14.3%, what is the NPV of this project? Note: All dollar values are given in units of $1k = $1000. Provide your answer in units of $1000, thus, $15000 = 15k and thus you should enter 15 for your answer.
You are evaluating a project that requires an investment of $97 today and garantees a single cash flow of $115 one year from now. You decide to use 100% debt financing, that is, you will borrow $97. The risk-free rate is 6% and the tax rate is 30%. Assume that the investment is fully depreciated at the end of the year, so without leverage you would owe taxes on the difference between the project cash flow and the investment, that is, $18. a. Calculate the NPV of this investment opportunity using the APV method. b. Using your answer to part (a), calculate the WACC of the project. c. Verify that you get the same answer using the WACC method to calculate NPV. d. Finally, show that flow-to-equity method also correctly gives the NPV of this investment opportunity.
Project Beta is a 7-year project which requires an initial outlay of $6,000. This outlay will be depreciated using straight-line depreciation over the life of the project. It will generate incremental revenue of $2400 per year and incremental costs (excluding depreciation) of $300. The tax rate is 35%. What is the project's annual after-tax incremental earnings? Question 3Answer a. $135 b. $808 c. $251 d. $435