The Buffalo Snow Shoe Company is considering manufacturing radial snow shoes, which are more durable and offer better traction. Buffalo estimates that the investment in manufacturing equipment will cost $240,000 and will have a 10-year economic life. Buffalo will depreciate the equipment on a straight-line basis to a $0 estimated salvage value over a 10-year period. The estimated selling price of each pair of shoes will be $50. Buffalo anticipates that it can sell 5,000 pairs a year at this price. Unit production and selling costs (exclusive of depreciation) will be about $30. The firm’s marginal tax rate is 40 percent. A cost of capital of 11 percent is thought to be appropriate to analyze a project of this type. Buffalo has decided to perform a sensitivity analysis of the project before making a decision. Use Table IV to answer the questions. Round your answers to the nearest dollar.
Compute the expected net present value of this project. $ Buffalo's president does not believe that 5,000 pairs of the new snow shoes can be sold at a $50 price. He estimates that a maximum of 3,000 pairs will be sold at this price.
How does the change in the estimated sales volume influence the net present value of the project?
The new NPV: $
1.
=-240000+((5000*(50-30)-240000/10)*(1-40%)+240000/10)*PVIFA(11%,10)
=-240000+((5000*(50-30)-240000/10)*(1-40%)+240000/10)*5.889
=169874.40000
2.
=-240000+((3000*(50-30)-240000/10)*(1-40%)+240000/10)*PVIFA(11%,10)
=-240000+((3000*(50-30)-240000/10)*(1-40%)+240000/10)*5.889
=28538.40000
The Buffalo Snow Shoe Company is considering manufacturing radial snow shoes, which are more durable and...
International Foods Corporation, a U.S.-based food company, is
considering expanding its soup-processing operations in
Switzerland. The company plans a net investment of $7 million in
the project. The current spot exchange rate is SF5.5 per dollar (SF
= Swiss francs). Net cash flows for the expansion project are
estimated to be SF3 million for 7 years and nothing thereafter.
Based on its analysis of current conditions in Swiss capital
markets, International Foods has determined that the applicable
cost of capital...
A machine that costs $6,750 is expected to operate for 9 years.
The estimated salvage value at the end of 9 years is $0. The
machine is expected to save the company $1,669 per year before
taxes and depreciation. The company depreciates its assets on a
straight-line basis and has a marginal tax rate of 40 percent. What
is the exact internal rate of return on this investment? Use the
calculator and Table IV to answer the question. Round your...
A company is planning to invest $70,000 (before tax) in a
personnel training program. The $70,000 outlay will be charged off
as an expense by the firm this year (year 0). The returns from the
program in the form of greater productivity and a reduction in
employee turnover are estimated as follows (on an after-tax basis):
Years 1–10: $14,000 per year Years 11–20: $21,000 per year The
company has estimated its cost of capital to be 12 percent. Assume
that...
a: should/should not
b: should/shouod not
appendix d
An investment costs $23,958 and will generate cash flow of $6,000 annually for five years. The firm's cost of capital is 10 percent. Use Appendix D to answer the questions a. What is the investment's Internal rate of return? Round your answer to the nearest whole number Based on the internal rate of return, should the firm make the investment? The investment Select B made b. What is the investment's net present...
a: should/should not
b: should/should not
c: the same/different
An investment costs $17,944 and will generate cash flow of $4,000 annually for six years. The firm's cost of capital is 10 percent. Use Appendix D to answer the questions. a. What is the investment's internal rate of return? Round your answer to the nearest whole number Based on the internal rate of return, should the firm make the investment? The investment -Select B made. b. What is the investment's net...
Dooley, Inc., has outstanding $50 million (par value) bonds that
pay an annual coupon rate of interest of 8.5 percent. Par value of
each bond is $1,000. The bonds are scheduled to mature in 17 years.
Because of Dooley’s increased risk, investors now require a 15
percent rate of return on bonds of similar quality with 17 years
remaining until maturity. The bonds are callable at 112 percent of
par at the end of 9 years. Use Table II and...
King’s Department Store is contemplating the purchase of a new
machine at a cost of $18,392. The machine will provide $4,100 per
year in cash flow for six years. King’s has a cost of capital of 13
percent. Use Appendix D for an approximate answer but calculate
your final answer using the financial calculator method.
a. What is the internal rate of return?
(Do not round intermediate calculations. Enter your answer
as a percent rounded to 2 decimal places.)
...
ou buy a new piece of equipment for $28,192, and you receive a
cash inflow of $4,500 per year for 16 years. Use Appendix D for an
approximate answer but calculate your final answer using the
financial calculator method.
What is the internal rate of return? (Do not round
intermediate calculations. Enter your answer as a percent rounded
to 2 decimal places.)
Internal rate of return _________%
(1+1 Present value of an annuity of $1, PVFA PV A Appendix...
h 9.10) Help Seve & E Mrs. Crawford will receive $7,250 a year for the next 17 years from her trust. Use Appendix D for an approximate answer, but calculate your final answer using the formula and financial calculator methods If a 9 percent interest rate is applied, what is the current value of the future payments? (Do not round intermediate calculations. Round your final answer to 2 decimal places.) Present vakre appendix D Present value of an annuity of...
CENGAGE MINDTAP search trus cour Exam 2 | 128:36 Back to Assignment Attempts 12. Problem 16-03 eBook Problem 16-03 A stock costs $100 and pays a $6 annual dividend. If you expect to sell the stock after seven years for $120, what is your anticipated return on the investment? Use Appendix Band Appendix D to answer the question. Round your answer to the nearest whole number. We were unable to transcribe this imageStart Mindtop Acer Mindtapenko Appendix B.jpg Appen &...