Jason Industries is considering a new project. Prior to making this decision the company hired a consultant, at a cost of $20,780, to determine the viability of this new project. The project will require $290,400 for the purchase of the new machine. There will be $16,000 in delivery charges and $1,250 will be spent on a technician to calibrate the machine. The new project will require an additional $1,200 in inventory, $1,060 in accounts receivables and accounts payable is expected to increase by $920. The new machine belongs in a 30% CCA class. At the end of the project, in 5 years time, the machine can be sold for $53,650. The net working capital will return to its original levels at the end of the project. The project is expected to generate additional revenues of $33,600 and expenses are expected to increase by $4,540. The tax rate is 35% and the required rate of return is 15%. What is the present value of the terminal cashflows?
Added by Mariano G.
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The company Derabel, S.A. is considering buying a new machine for its production process. This project means an initial cost of €200,000 and the machine is estimated to have a useful life of 5 years. The maximum productive capacity of the machine is 200,000 units per year. However, in the first year, it is expected that the activity will be 70% of the maximum installed capacity, reaching 100% from the second year. During the first year, the unit sales price will be €2.50, the unit variable cost €1.50, and the fixed annual cost €60,000, resulting in cumulative yearly increases of 4% in the price of the product sale, 3% on variable costs, and 2% on fixed costs. Also, it is assumed that: - The company uses a linear depreciation system, and the residual value of the machine is €25,000. - Besides, the sale value of the machine at the end of its physical life will be €30,000, which will be charged in cash. - The nominal discount rate (kN) used by the company is 8% per year and constant for the planned period. - The tax rate that taxes the benefits is 25%. Taxes are paid in the period following their accrual. - All production is sold in the reference period. - All income and expenses are charged and paid in cash. With the above data, determine the Net Cash Flows after taxes of the project described above. Calculate the net absolute return.
Akash M.
Damon Corporation, a sports equipment manufacturer, has a machine currently in use that was originally purchased 3 years ago for $120,000. The firm depreciates the machine under MACRS using a 5-year recovery period. Once removal and cleanup costs are taken into consideration, the expected net selling price for the present machine will be $70,000. Damon can buy a new machine for a net price of $160,000 (including installation costs of $15,000). The proposed machine will be depreciated under MACRS using a 5-year recovery period. If the firm acquires the new machine, its working capital needs will change: Accounts receivable will increase $15,000, inventory will increase $19,000, and accounts payable will increase $16,000. Earnings before depreciation, interest, and taxes (EBIT) for the present machine are expected to be $95,000 for each of the successive 5 years. For the proposed machine, the expected EBIT for each of the next 5 years are $105,000, $110,000, $120,000, $120,000, and $120,000, respectively. The corporate tax rate (T) for the firm is 40%. Damon expects to be able to liquidate the proposed machine at the end of its 5-year usable life for $24,000 (after paying removal and cleanup costs). The present machine is expected to net $8,000 upon liquidation at the end of the same period. Damon expects to recover its net working capital investment upon termination of the project. The firm has a 40 percent corporate tax rate and a 10 percent required return. Create a spreadsheet to answer the following: a. Create a spreadsheet to calculate the initial investment. b. Create a spreadsheet to prepare a depreciation schedule for both the proposed and the present machine. Both machines are depreciated under MACRS using a 5-year recovery period. Remember that the present machine has only 3 years of depreciation remaining. c. Create a spreadsheet to calculate the operating cash flows for Damon Corporation for both the proposed and the present machine. d. Create a spreadsheet to calculate the terminal cash flow associated with the project. e. Determine the payback period of the project. f. Determine the profitability index of the project. g. Determine the IRR of the project. h. Determine the NPV of the project. i. Provide the recommendation based on your analysis on those criteria.
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Dizzy Animators, Inc. currently makes all sales on credit and offers no cash discount. The firm is considering a 3% cash discount for payment within 10 days. The firm's current average collection period is 90 days, sales are 500 films per year, selling price is P25,000 per film, variable cost per film is P18,000, and the average cost per film is P21,000. The firm expects that the change in credit terms will result in a minor increase in sales of 10 films per year, that 70% of the sales will take the discount, and the average collection period will drop to 30 days. The bad debt expense is currently 1.5% of sales. Under the proposal, bad debts will decrease to 0.5%. The firm's required return on equal-risk investments is 12%. (use 360 days)
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