The Airbus A380 is the largest civilian aircraft ever built. It can carry 555 passengers on two decks. Initialproject investments were $13B. Assume that the initial investment was paid on December 31, 2008. Assumethat Airbus will produce 60 aircraft per year for five years. Each aircraft will be sold for $230M and totaloperating costs are 75% of revenues. Assume that revenues and costs occur at year-end with the first revenues(and costs) occurring on December 31, 2009. What is the NPV of the project if Airbus' cost of capital is 11%?Calculate the NPV as of December 31, 2008. Ignore taxes and assume that there are no terminal year cashflows.-$2.799B-$0.249B$0.078B$2.751BO $25.253B

The net present value (NPV) capital budgeting approach is used to determine the current value of…

Answered: The Airbus A380 is the largest civilian…

Essentials Of Investments

11th Edition

ISBN:9781260013924

Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Chapter1: Investments: Background And Issues

Section: Chapter Questions

Problem 1PS

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Elearning Company would like to develop its technology process by purchasing a production equipment for 11.2 million HUF. The equipment is expected to have a useful life of 5 years, and will be sold at the end of 5 years for 2.5 million HUF. The annual operating costs are predicted to be 1.5 million HUF. The estimated revenues are in yearly sequence ( HUF) 5.2 million; 5.5 million; 6.1million; 7 million; 7.5 million. The company's required rate of return is 12 percent. You can see the way of the economic efficiency calculation in the table. Some of the data are missing. Enter the missing data in the table. Perform further calculations and explain the results obtained. Data Year O Year 1 Year 2 Year 3 Year 4 Year 5 Pt (M HUF) 5.2 5.5 6.1 7 kt (M HUF) 1.5 1.5 1.5 1.5 1.5 Et (M HUF) 11.2 CFt (M HUF) -11.2 3.7 4 4.6 5.5 8.5 Dt 1 0.89286 0.79719 0.63552 0.56743 CFt*Dt (M HUF) -11.20 3.30 3.19 3.27 4.82 ECF**Dt (M HUF) -11.20 -7.90 -4.71 -1.43 2.06 The NPV of the project is million HUF.
. The year-end operating and maintenance costs of a certain machine are estimated to be P12,000 the first year and to increase by P2,500 each year during its 4-year life. If capital is worth 12%, determine the equivalent uniform year-end costs.
Aguilera Acoustics, Inc. (AAI), projects unit sales for a newseven-octave voice emulation implant as follows: Year Unit Sales 1 8300 2 9200 3 10400 4 9800 5 8400 Production of the implants will require GH¢ 150,000 in net working capital to start and additional net working capital investments each year equal to 15 percent of the projected sales for that year. In the final year of the project, net working capital will decline to zero as the project is wound down. In other words, the investment in working capital is to be completely recovered by the end of the project’s life. Total fixed costs are GH¢ 240,000 per year, variable production costs are GH¢ 190 per unit, and the units are priced at GH¢ 345 each. The equipment needed to begin production has an installed cost of GH¢ 2,300,000. Because the implants are intended for professional singers, this equipment depreciated using the straight-line basis. In five years,…
A company is considering the purchase of a new machine for $68,000. Management predicts that the machine can produce sales of $19,000 each year for the next 10 years. Expenses are expected to include direct materials, direct labor, and factory overhead totaling $7,000 per year including depreciation of $6,000 per year. Income tax expense is $4,800 per year based on a tax rate of 40%. What is the payback period for the new machine? Multiple Choice 22.67 years. 8.50 years. 3.58 years. 5.15 years. 11.33 years.
DSSS CorporationDSSS Corporation is considering a new project to manufacture widgets. The cost of the manufacturing equipment is $135,000. The cost of shipping and installation is an additional $2,600. The asset will fall into the 3-year MACRS class. The year 1- 4 MACRS percentages are 33.33%, 44.45%, 14.81%, and 7.41%, respectively. Sales are expected to be $215,000 per year. Cost of goods sold will be 64% of sales. The project will require an increase in net working capital of $2,600. At the end of three years, DSSS plans on ending the project and selling the manufacturing equipment for $30,000. The marginal tax rate is 36% and DSSS Corporation’s appropriate discount rate is 12%. The fixed expenses is $12,000.Refer to DSSS Corporation. What is the book value of the machine at the end of year 4? Group of answer choices $20,379 $45,862 $10,196 $61,163
DSSS CorporationDSSS Corporation is considering a new project to manufacture widgets. The cost of the manufacturing equipment is $135,000. The cost of shipping and installation is an additional $2,600. The asset will fall into the 3-year MACRS class. The year 1- 4 MACRS percentages are 33.33%, 44.45%, 14.81%, and 7.41%, respectively. Sales are expected to be $215,000 per year. Cost of goods sold will be 64% of sales. The project will require an increase in net working capital of $2,600. At the end of three years, DSSS plans on ending the project and selling the manufacturing equipment for $30,000. The marginal tax rate is 36% and DSSS Corporation’s appropriate discount rate is 12%. The fixed expenses is $12,000.Refer to DSSS Corporation. What is the initial investment outlay for this project? Group of answer choices $140200 $150,200 $35,000 $130,200
DSSS CorporationDSSS Corporation is considering a new project to manufacture widgets. The cost of the manufacturing equipment is $135,000. The cost of shipping and installation is an additional $2,600. The asset will fall into the 3-year MACRS class. The year 1- 4 MACRS percentages are 33.33%, 44.45%, 14.81%, and 7.41%, respectively. Sales are expected to be $215,000 per year. Cost of goods sold will be 64% of sales. The project will require an increase in net working capital of $2,600. At the end of three years, DSSS plans on ending the project and selling the manufacturing equipment for $30,000. The marginal tax rate is 36% and DSSS Corporation’s appropriate discount rate is 12%. The fixed expenses is $12,000.Refer to DSSS Corporation. What is the operating cash flow for year 3? Group of answer choices $58,366 $49,192 $63,875 $20,379
DSSS CorporationDSSS Corporation is considering a new project to manufacture widgets. The cost of the manufacturing equipment is $135,000. The cost of shipping and installation is an additional $2,600. The asset will fall into the 3-year MACRS class. The year 1- 4 MACRS percentages are 33.33%, 44.45%, 14.81%, and 7.41%, respectively. Sales are expected to be $215,000 per year. Cost of goods sold will be 64% of sales. The project will require an increase in net working capital of $2,600. At the end of three years, DSSS plans on ending the project and selling the manufacturing equipment for $30,000. The marginal tax rate is 36% and DSSS Corporation’s appropriate discount rate is 12%. The fixed expenses is $12,000.Refer to DSSS Corporation. What is the after-tax cash flow from selling the machine at the end of year 3? Group of answer choices $21,935 $30,000 $8,065 $2,600
DSSS CorporationDSSS Corporation is considering a new project to manufacture widgets. The cost of the manufacturing equipment is $135,000. The cost of shipping and installation is an additional $2,600. The asset will fall into the 3-year MACRS class. The year 1- 4 MACRS percentages are 33.33%, 44.45%, 14.81%, and 7.41%, respectively. Sales are expected to be $215,000 per year. Cost of goods sold will be 64% of sales. The project will require an increase in net working capital of $2,600. At the end of three years, DSSS plans on ending the project and selling the manufacturing equipment for $30,000. The marginal tax rate is 36% and DSSS Corporation’s appropriate discount rate is 12%. The fixed expenses is $12,000.Refer to DSSS Corporation. What is the IRR of the project? Group of answer choices 14% 20% 18% -15%
DSSS CorporationDSSS Corporation is considering a new project to manufacture widgets. The cost of the manufacturing equipment is $135,000. The cost of shipping and installation is an additional $2,600. The asset will fall into the 3-year MACRS class. The year 1- 4 MACRS percentages are 33.33%, 44.45%, 14.81%, and 7.41%, respectively. Sales are expected to be $215,000 per year. Cost of goods sold will be 64% of sales. The project will require an increase in net working capital of $2,600. At the end of three years, DSSS plans on ending the project and selling the manufacturing equipment for $30,000. The marginal tax rate is 36% and DSSS Corporation’s appropriate discount rate is 12%. The fixed expenses is $12,000.Refer to DSSS Corporation. What is the total cash flow generated in year 3? Group of answer choices $63,875 $73,727 $49,192 $24,535
DSSS CorporationDSSS Corporation is considering a new project to manufacture widgets. The cost of the manufacturing equipment is $135,000. The cost of shipping and installation is an additional $5,300. The asset will fall into the 3-year MACRS class. The year 1- 4 MACRS percentages are 33.33%, 44.45%, 14.81%, and 7.41%, respectively. Sales are expected to be $230,000 per year. Cost of goods sold will be 61% of sales. The project will require an increase in net working capital of $5,300. At the end of three years, DSSS plans on ending the project and selling the manufacturing equipment for $20,000. The marginal tax rate is 39% and DSSS Corporation’s appropriate discount rate is 15%. The fixed expenses is $12,000.Refer to DSSS Corporation. What is the NPV of the project? Group of answer choices -$15,009 $19,150 $17,557 $15,009
Information for two alternative projects involving machinery investments follows. Project 1 requires an initial investment of $133,000. Project 2 requires an initial investment of $99,900. Assume the company requires a 10% rate of return on its investments. (PV of $1, FV of $1, PVA of $1, and FVA of $1) (Use appropriate factor(s) from the tables provided.) Annual Amounts Sales of new product Expenses Materials, labor, and overhead (except depreciation) Depreciation Machinery Selling, general, and administrative expenses Income Years 1-7 Project 1 Net present value Years 1-5 Compute the net present value of each potential investment. Use 7 years for Project 1 and 5 years for Project 2. (Negative net present values should be indicated with a minus sign. Round your present value factor to 4 decimals. Round your answers to the nearest whole dollar.) Project 2 Net present value Net Cash Flows Net Cash Flows X X Present Value of Annuity at 10% Present Value of Annuity at 10% = Project 1…

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