NPV = $1,000,000
Added by Chad A.
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This initial investment is the amount of money that needs to be invested at the beginning of the project in order to generate the expected cash flows that result in the NPV of $1,000,000. Show more…
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A company is considering buying a diagnostic piece of equipment for $250,000. The machine will be depreciated on a straight-line basis for 10 years with a salvage value of $40,000. The company expects the machine to be able to generate after-tax revenues of $33,000 in each of the 10 years, and then it will sell the machine for $40,000 at the end of 10 years. The sum of the undiscounted cash flows is $370,000. The discount rate is 7%. The net present value is calculated to be $2,112. Which of the following statements is true? 1) The company should not buy the equipment because the NPV is less than the annual revenues expected. 2) The company should not buy the equipment because the NPV is less than the initial cost of the equipment. 3) The company should buy the equipment because the sum of the undiscounted cash flows is greater than the initial cost of the equipment. 4) The company should buy the equipment because the NPV is positive.
Adi S.
A project requires the purchase of $587,000 of equipment that will be depreciated straight-line to a zero book value over the four-year life of the project. The equipment can be scrapped at the end of the project for 33 percent of its original cost. Annual sales from this project are estimated at $625,000 with cash expenses of $487,000. Net working capital equal to 12 percent of sales will be required to support the project. The required return is 13 percent and the tax rate is 21 percent. What is the cash flow in Year 2 of the project? Ignore bonus depreciation. Group of answer choices: $91,080 -$55,670 $139,838 $105,560 -$5,775
Akash M.
a. Project A costs $5,000 and will generate annual after-tax net cash inflows of $1,800 for five years. What is the payback period for this investment under the assumption that the cash inflows occur evenly throughout the year? b. Project B costs $5,000 and will generate after-tax cash inflows of $500 in year one, $1,200 in year two, $2,000 in year three, $2,500 in year four, and $2,000 in year five. What is the payback period (in years) for this investment assuming that the cash inflows occur evenly throughout the year? c. Project C costs $5,000 and will generate net cash inflows of $2,500 before taxes for five years. The firm uses straight-line depreciation with no salvage value and is subject to a 25 percent tax rate. What is the payback period? d. Project D costs $5,000 and will generate sales of $4,000 each year for five years. The cash expenditures will be $1,500 per year. The firm uses straight-line depreciation with an estimated salvage value of $500 and has a tax rate of 25 percent. (1) What is the book rate of return based on the original investment? (2) What is the book rate of return based on the average book value? e. What is the NPV for each of the projects a through d above? Assume that the firm requires a minimum after-tax return of 8 percent on all investments.
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