Calculating Project
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Corporate Finance (The Mcgraw-hill/Irwin Series in Finance, Insurance, and Real Estate)
- With the growing popularity of casual surf print clothing, two recent MBA graduates decided to broaden this casual surf concept to encompass a “surf lifestyle for the home.” With limited capital, they decided to focus on surf print table and floor lamps to accent people's homes. They projected unit sales of these lamps to be 7,200 in the first year, with growth of 6 percent each year for the next five years. Production of these lamps will require $37,000 in net working capital to start. The net working capital will be recovered at the end of the project. Total fixed costs are $97,000 per year, variable production costs are $15 per unit, and the units are priced at $45 each. The equipment needed to begin production will cost $177,000. The equipment will be depreciated using the straight-line method over a five-year life and is not expected to have a salvage value. The effective tax rate is 22 percent and the required rate of return is 30 percent. What is the NPV of this project? (Do not…arrow_forwardWith the growing popularity of casual surf print clothing, two recent MBA graduates decided to broaden this casual surf concept to encompass a "surf lifestyle for the home." With limited capital, they decided to focus on surf print table and floor lamps to accent people's homes. They projected unit sales of these lamps to be 10,900 in the first year, with growth of 8 percent each year for the next five years. Production of these lamps will require $63,000 in net working capital to start. Total fixed costs are $152,000 per year, variable production costs are $20 per unit, and the units are priced at $63 each. The equipment needed to begin production will cost $620,000. The equipment will be depreciated using the straight-line method over a 5-year life and is not expected to have a salvage value. The tax rate is 24 percent and the required rate of return is 16 percent. What is the NPV of this project? (Do not round intermediate calculations and round your answer to 2 decimal places,…arrow_forwardWith the growing popularity of casual surf print clothing, two recent MBA graduates decided to broaden this casual surf concept to encompass a “surf lifestyle for the home.” With limited capital, they decided to focus on surf print table and floor lamps to accent people’s homes. They projected unit sales of these lamps to be 11,200 in the first year, with growth of 8 percent each year for the next five years. Production of these lamps will require £69,000 in net working capital to start. Total fixed costs are £161,000 per year, variable production costs are £18 per unit, and the units are priced at £63 each. The equipment needed to begin production will cost £635,000. The equipment will be depreciated using the straight-line method over a 5-year life and is not expected to have a salvage value. The tax rate is 22% and the required rate of return is 19%. Using the information provided, evaluate the investment option.arrow_forward
- Answer the following question with complete solutions and cash flow diagram. An engineer launches a project in the country's top technohub. This involves rental of a computer unit for online class students. He felt that because of the density of students in the area, 90% of his 30-units will be occupied per sem (5 months each) per year. He desires a rate of return of 20%. Other pertinent data are the following: Office investment Computer investment per unit Cost of computers after 10 yrs |Office rental per month Computer rental per unit per month Annual maintenance budget per unit Business tax P 1,000,000 P 35,000 P 5,000 P 9,000 P 2,000 P 5,000 1% of Total Investment Insurance 0.5% of Total Investment Assess the project using (1) ROR, (2) Present Worth Method, and (3) Future Worth Method. (4) Estimate the payback period of this project.arrow_forwardAnswer the following question with complete solution and cash flow diagram. An engineer launches a project in the country's top techohub. This involves rental of a computer unit for online class students. He felt that because of the density of students in the area, 90% of his 30-units will be occupied per sem (5 months each) per year. He desires a rate of return of 20%. Other pertinent data are the following: Office investment Computer investment per unit Cost of computers after 10 yrs Office rental per month Computer rental per unit per month Annual maintenance budget per unit Business tax P 1,000,000 P 35,000 P 5,000 P 9,000 P 2,000 P 5,000 1% of Total Investment Insurance 0.5% of Total Investment Assess the project using (A) ROR, (B) Present Worth Method, and (C) Future Worth Method. (D) Estimate the payback period of this project.arrow_forwardFlexcell Bhd is considering investing in the production of a new technology, a handheld communication device, the target market is young undergraduates. The estimated investment cost for this project is RM100 million with 3 year project life. Demand for the product, and therefore the project risk, is a function of the demand for Internet connections. The CFO working with marketing, currently estimates a 25% chance that such demand will be high, a 50% probability that demand will be medium, and a 25% probability that demand will be low. Associated after tax cash flows under each of these three market scenarios are estimated as follows: RM70 million, RMS0 million, and RM5 million. For projects of this nature, a 15% discount rate (equal to the firm's weighted average cost of capital) is assumed. Because starting the project immediately on day 1 results in negative NPV of RM0.109 million, management of the company has decided to avoid risk by delaying the implementation of the project for…arrow_forward
- An engineer launches a project in the country's top techohub. This involves rental of a computer unit for online class students. He felt that because of the density of students in the area, 90% of his 30-units will be occupied per sem (5 months each) per year. He desires a rate of return of 20%. Other pertinent data are the following: Office investment Computer investment per unit |Cost of computers after 10 yrs Office rental per month |Computer rental per unit per month |Annual maintenance budget per unit Business tax Insurance P 1,000,000 P 35,000 P 5,000 P 9,000 P 2,000 P 5,000 | 1% of Total Investment 0.5% of Total Investment Assess the project using (1) ROR, (2) Present Worth Method, and (3) Future Worth Method. (4) Estimate the payback period of this project.arrow_forwardFinance John and John Plc. is a midsized electronics manufacturing company in the West of Scotland. You have recently joined as a finance manager at John and John. Last week, the marketing manager brought a new project to your attention. This project is about manufacturing robot vacuum cleaners ETX600 with an expected product life cycle of 4 years. In 2019, John and John Plc plans to launch these new vacuum cleaners if the project is financially feasible. Research and development costs incurred in the past three years amount to £150,000. Advertising is expected to cost £25,000 in year 1. Advertising costs will reduce by 10% every year thereafter. The company expects that sales in the first year will be £800,000, second and third year sales will be £650,000 and sales in the fourth year will be £600,000. Variable costs will be 50% of sales each year and the fixed production cost is expected to be £100,000 per year. The company estimates that if these new robot vacuum cleaners are…arrow_forwardAustins cell phone manufacturer wants to upgrade their product mix to encompass an exciting new feature on their cell phone. This would require a new high-tech machine. You are excited about his new project and are recommending the purchase to your board of directors. Here is the information you have compiled in order to complete this recommendation: According to the information, the project will last 10 years and require an initial investment of $800,000, depreciated with straight-line over the life of the project until the final value is zero. The firms tax rate is 30% and the required rate of return is 12%. You believe that the variable cost and sales volume may be as much as 10% higher or lower than the initial estimate. Your boss understands the risks but asks you to explain the alternatives in a brief memo to the board, Write a memo to the Board of Directors objectively weighing out the pros and cons of this project and make your recommendation(s).arrow_forward
- Margos Memories, a company that specializes in photography and creating family and group photo portfolios, has 50 stores in major malls around the U.S. The company is considering an online business, which will require a substantial Investment in web design, security, payment processing, and technology in order to launch successfully. What potential advantages or disadvantages will be difficult to quantify from a capital investment standpoint?arrow_forwardThroughout the semester we have talked about the challenges facing office building owners in a post pandemic work environment where office workers are allowed to work remotely. You own a 500,00 square foot office building in a viable urban market, but you anticipate a stabilized vacancy rate of 40% for the next 10 years. If your investors require a 12% cash on cash return, how much could you spend per square foot to convert the vacant office space to micro-apartments if your project stabilized cash available to investors will be $12 million? Question 18 options: $200 per square foot. $800 per square foot. $250 per square foot. $500 per square foot.arrow_forwardZipCar auto parts store has $88,000 to invest in a project to detect and reduce insier theft in their stores. They have considering investing in one of two alternatives, identified as Y and Z. Z is the higher first-cost alternative, and the incremental initial investment between the two is $22,000 and will exhibit a rate of return of 12% per year. Z requires an investment of $88,000. They expect a rate of return on the $88,000 investment of 49 percent. Answer the following questions; (a) what is the size of the investment required in Y?, and, (b) what is the rate of return on Y? The size of the investment required in Y is $ The rate of return on Y is %.arrow_forward
- EBK CONTEMPORARY FINANCIAL MANAGEMENTFinanceISBN:9781337514835Author:MOYERPublisher:CENGAGE LEARNING - CONSIGNMENTPrinciples of Accounting Volume 2AccountingISBN:9781947172609Author:OpenStaxPublisher:OpenStax College