The Papillon Corporation faces a 22 % income tax rate. First, find the project's estimated unlevered cash flows, and then calculate the project's unlevered net present value. (Do not round intermediate calculations and enter your answer in dollars, not millions of dollars, rounded to 2 decimal places, e.g., 1,234,567.89) Net present value
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- Friedman Company is considering installing a new IT system. The cost of the new system is estimated to be 2,250,000, but it would produce after-tax savings of 450,000 per year in labor costs. The estimated life of the new system is 10 years, with no salvage value expected. Intrigued by the possibility of saving 450,000 per year and having a more reliable information system, the president of Friedman has asked for an analysis of the projects economic viability. All capital projects are required to earn at least the firms cost of capital, which is 12 percent. Required: 1. Calculate the projects internal rate of return. Should the company acquire the new IT system? 2. Suppose that savings are less than claimed. Calculate the minimum annual cash savings that must be realized for the project to earn a rate equal to the firms cost of capital. Comment on the safety margin that exists, if any. 3. Suppose that the life of the IT system is overestimated by two years. Repeat Requirements 1 and 2 under this assumption. Comment on the usefulness of this information.The Perez Company has the opportunity to invest in one of two mutually exclusive machines that will produce a product it will need for the foreseeable future. Machine A costs $10 million but realizes after-tax inflows of $4 million per year for 4 years. After 4 years, the machine must be replaced. Machine B costs $15 million and realizes after-tax inflows of $3.5 million per year for 8 years, after which it must be replaced. Assume that machine prices are not expected to rise because inflation will be offset by cheaper components used in the machines. The cost of capital is 10%. By how much would the value of the company increase if it accepted the better machine? What is the equivalent annual annuity for each machine?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?
- Roberts Company is considering an investment in equipment that is capable of producing more efficiently than the current technology. The outlay required is 2,293,200. The equipment is expected to last five years and will have no salvage value. The expected cash flows associated with the project are as follows: Required: 1. Compute the projects payback period. 2. Compute the projects accounting rate of return. 3. Compute the projects net present value, assuming a required rate of return of 10 percent. 4. Compute the projects internal rate of return.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 companys tax rate is 40%. a. What is the initial investment outlay? b. The company spent and expensed 150,000 on research related to the new product last year. Would this change your answer? Explain. c. 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. How would this affect your answer?Shao Airlines is considering the purchase of two alternative planes. Plane A has an expected life of 5 years, will cost $100 million, and will produce net cash flows of $30 million per year. Plane B has a life of 10 years, will cost $132 million, and will produce net cash flows of $25 million per year. Shao plans to serve the route for only 10 years. Inflation in operating costs, airplane costs, and fares are expected to be zero, and the company’s cost of capital is 12%. By how much would the value of the company increase if it accepted the better project (plane)? What is the equivalent annual annuity for each plane?
- Cameron Enterprises, Inc. is considering launching a new corporate project. The company will have to make Capital Investments, Working Capital investments, andgenerate Cash Flows from Operating the new project. The Equipment required for theproject will cost $3,000,000 today, will last for three years (the length of the project),and is estimated at the time of purchase to sell for $300,000 at the end of its life. Revenue is projected at $5.0M in the first year, $5.3M in the second year, $5.6M in the third year, $5.9 in the fourth year, $6.0M in the fifth year, and $5.0M in the final year. The investment in Net Working Capital is $300,000 initially, with the year-end values at 10% of that year's sales. The company uses Straight-Line depreciation and has a Tax Rate of 27%. The appropriate discount rate for the risks involved is 10%. Per your DCF analysis of the project, what is the cash flow from the change in net working capital in year six? Multiple Choice None of the…The Papillon Corporation is considering launching a new project, and it would like to do the math to figure out if it is worth it. The Papillon Corporation has no loans, and currently its cost of equity is 11.6 %. The project would require an immediate investment of $11.67 million to buy production equipment. The equipment will depreciate according to the straight-line method, and its economic life is 6 years. The Papillon Corporation expects that this 6-year- long project would bring "revenues minus costs of goods sold in the amount of $3.37 million each year. (Use the company's cost of equity to discount their after-tax values.) You also know that the T-Bill, or the risk-free, rate is 3.5 % per year. (Use this rate to discount the risk-free cash flows from this project, such as the annual "depreciation tax shields" (HINT: see Ch.6 PowerPoint!).) The Papillon Corporation faces a 24 % income tax rate. First, find the project's estimated unlevered cash flows, and then calculate the…Ancer Food Enterprises, Inc. is considering launching a new corporate project. The company will have to make Capital Investments, Invest in Net Working Capital, and generate Cash Flows from Operating the new project. The Equipment required for the project will cost $8,700,000, will last for six years (the length of the project), and is estimated to be worthless at the end of its useful life. The initial investment in Net Working Capital needs to be $400,000, while the year-end investment in NWC for years 1 - 5 will be 20% of the current year's sales; ending Net Working Capital at the end of year six will be zero. Year One's sales will be $5,200,000 with annual growth at 5%; operating expenses will be 40% of sales. The company uses Straight-Line depreciation and has a Tax Rate of 22%. The appropriate discount rate for the risks involved is 12%. By how much does the Net Present Value of this project change if improved Working Capital Management cuts the required investment in Net…
- Ancer Food Enterprises, Inc. is considering launching a new corporate project. The company will have to make Capital Investments, Invest in Net Working Capital, and generate Cash Flows from Operating the new project. The Equipment required for the project will cost $8,700,000, will last for six years (the length of the project), and is estimated to be worthless at the end of its useful life. The initial investment in Net Working Capital needs to be $400,000, while the year-end investment in NWC for years 1 - 5 will be 20% of the current year's sales; ending Net Working Capital at the end of year six will be zero. Year One's sales will be $5,200,000 with annual growth at 5%; operating expenses will be 40% of sales. The company uses Straight-Line depreciation and has a Tax Rate of 22%. The appropriate discount rate for the risks involved is 12%. By how much does the Net Present Value of this project change if improved Working Capital Management cuts the required investment in Net…Almendarez Corporation is considering the purchase of a machine that would cost $100,000 and would last for 3 years. At the end of 3 years, the machine would have a salvage value of $15,000. By reducing labor and other operating costs, the machine would provide annual cost savings of $35,000. The company requires a minimum pretax return of 12% on all investment projects. (Ignore income taxes.) The net present value of the proposed project is closest to: (Round your intermediate calculations and final answer to the nearest whole dollar amount.)Hilton Bay Corporation is planning to buy new equipment to replace the existing one which is already old with reduced output capacity.The equipment currently in used has zero book value and zero market value. Even the absence of market value, the equipment is stillcapable of making production output for the next ten years. But, if the equipment will be replaced with the new one, the company’s technicalexperts had estimated that it could bring in cash flows of USD8,000 annually. The new equipment will require cash outlay of USD45,000including installation cost. Its estimated useful life is ten years. The new equipment is considered to have no salvage value. Hilton’s WACCis ten percent and with tax rate of 35percent. What would you recommend to Hilton Bay, buy the new equipment or continue using theexisting equipment? Discuss and show all computations.