Capital Budget Problem
The Gabriel Co. is considering a 7-year project that would require a cash outlay of $140,000 for machinery and an additional $30,000 for working capital that would be released at the end of the project. The equipment would be depreciated evenly over the 7 years and have a salvage value of $ 7,000 at the end of 7 years. The project would generate before tax annual cash inflows of $41,500. The tax rate is 20% and the company's discount rate is 12%.
Homework Questions for Problem 1
What is the annual accounting income?
What is the annual after-tax cash flow?
What is the payback based upon the initial cash outflows?
What is the discounted payback based upon the initial cash outflows?
What is the simple rate of return based upon the initial cash outflows?
What is the net present value?
What is the internal rate of return?
Would you recommend this project or not? Why?
For questions 3-5, would we use the after tax cashflow ($37,000) in the calculation, or the original annual cashflow ($41,500)?
How does the "additional $30,000 for working capital that would be released at the end of the project" factor in to the overall question(s)?
Homework Answers
Request Answer!
We need at least 10 more requests to produce the answer.
0 / 10 have requested this problem solution
The more requests, the faster the answer.
Problem 1 The Gabriel Co. is considering a 7-year project that would require a cash outlay...
Problem 1 The Gabriel Co. is considering a 7-year project that would require a cash outlay of $140,000 for machinery and an additional $30,000 for working capital that would be released at the end of the project. The equipment would be depreciated evenly over the 7 years and have a salvage value of $ 7,000 at the end of 7 years. The project would generate before tax annual cash inflows of $41,500. The tax rate is 20% and the company's...
Slick Company is considering a capital project involving a $225,000 investment in machinery and a $45,000...
Slick Company is considering a capital project involving a $225,000 investment in machinery and a $45,000 investment in working capital. The machine has an expected useful life of 10 years and no salvage value. The annual cash inflows (before taxes) are estimated at $90,000 with annual cash outflows (before taxes) of $30,000. The company uses straight-line depreciation. Assume the federal income tax rate is 40%. The company's new accountant computed the net present value of the project using a minimum...
Slick Company is considering a capital project involving a $225,000 investment in machinery and a $45,000...
Slick Company is considering a capital project involving a $225,000 investment in machinery and a $45,000 investment in working capital. The machine has an expected useful life of 10 years and no salvage value. The annual cash inflows (before taxes) are estimated at $90,000 with annual cash outflows (before taxes) of $30,000. The company uses straight-line depreciation. Assume the federal income tax rate is 40%. The company's new accountant computed the net present value of the project using a minimum...
needs to be in excel and need formulas shown WACC & Capital Budget Analysis Based on...
needs to be in excel and need formulas shown
WACC & Capital Budget Analysis Based on the inputs below prepare a capital budget analysis for this Base Case using the Net Present Value, Internal Rate of Return, Profitability Index and Payback in years methods, determining whether the project is feasible. Please show your spreadsheet calculations and your final determinations of "go" or "no go" on the project. AND explain your answer. Use your Investment Return Analysis as an example for...
(Related to Checkpoint 12.1) (Calculating project cash flows and NPV) You are considering expanding your product...
(Related to Checkpoint 12.1) (Calculating project cash flows and NPV) You are considering expanding your product line that currently consists of skateboards to include gas-powered skateboards, and you feel you can sell 11,000 of these per year for 10 years after which time this project is expected to shut down with solar-powered skateboards taking over). The gas skateboards would sell for $70 each with variable costs of $50 for each one produced, and annual fixed costs associated with production would...
Chapter 15 Capital Budgeting 45. LO.2 & LO.3 (Time line; payback; NPV) Holly's Fashions is considering...
Chapter 15 Capital Budgeting 45. LO.2 & LO.3 (Time line; payback; NPV) Holly's Fashions is considering expandi its building so it can stock additional merchandise for travelers and tourists. Store man ager Jill Eliason anticipates that building expansion costs would be $190,000. Th firm's suppliers are willing to provide inventory on a consignment basis so there would be no additional working capital needed upon expansion. Annual incremental fixed cash costs for the store expansion are expected to be as follows:...
Question 3 (1 point) Which of the following statements regarding investment in working capital is incorrect?...
Question 3 (1 point) Which of the following statements regarding investment in working capital is incorrect? working capital is recovered at the end of the project. investment in working capital, unlike investment in plant and equipment, represents a positive cash flow. the cash flow is measured by the change in working capital, not the level of working capital. the working capital may change during the life of the project. Question 4 (1 point) A company is considering a 5-year project...
Equipment is sold for $30,000 at the end of a project. The working capital return is...
Equipment is sold for $30,000 at the end of a project. The working capital return is $50,000. The tax rate is 40%. What is the terminal cash flow?
Calculate the NPV for the following capital budgeting proposal: $100,000 initial cost for equipment, straight-line depreciation...
Calculate the NPV for the following capital budgeting proposal: $100,000 initial cost for equipment, straight-line depreciation over 5 years to a zero book value, $5,000 pre-tax salvage value of equipment, 35% tax rate, $45,000 additional annual revenues, $15,000 additional annual cash expenses, $8,000 initial investment in working capital to be recouped at project end, and a cost of capital of 11%. Should the project be accepted or rejected?
Cash flows estimation and capital budgeting: You are the head of finance department in XYZ Company....
Cash flows estimation and capital budgeting: You are the head of finance department in XYZ Company. You are considering adding a new machine to your production facility. The new machine’s base price is $10,000.00, and it would cost another $2,280.00 to install it. The machine falls into the MACRS 3-year class (the applicable MACRS depreciation rates are 33.33%, 44.45%, 14.81%, and 7.41%), and it would be sold after three years for $1,850.00. The machine would require an increase in net...
Slick Company is considering a capital project involving a $225,000 investment in machinery and a $45,000 investment in working capital. The machine has an expected useful life of 10 years and no salvage value. The annual cash inflows (before taxes) are estimated at $90,000 with annual cash outflows (before taxes) of $30,000. The company uses straight-line depreciation. Assume the federal income tax rate is 40%. The company's new accountant computed the net present value of the project using a minimum...
Slick Company is considering a capital project involving a $225,000 investment in machinery and a $45,000 investment in working capital. The machine has an expected useful life of 10 years and no salvage value. The annual cash inflows (before taxes) are estimated at $90,000 with annual cash outflows (before taxes) of $30,000. The company uses straight-line depreciation. Assume the federal income tax rate is 40%. The company's new accountant computed the net present value of the project using a minimum...
needs to be in excel and need formulas shown
WACC & Capital Budget Analysis Based on the inputs below prepare a capital budget analysis for this Base Case using the Net Present Value, Internal Rate of Return, Profitability Index and Payback in years methods, determining whether the project is feasible. Please show your spreadsheet calculations and your final determinations of "go" or "no go" on the project. AND explain your answer. Use your Investment Return Analysis as an example for...
(Related to Checkpoint 12.1) (Calculating project cash flows and NPV) You are considering expanding your product line that currently consists of skateboards to include gas-powered skateboards, and you feel you can sell 11,000 of these per year for 10 years after which time this project is expected to shut down with solar-powered skateboards taking over). The gas skateboards would sell for $70 each with variable costs of $50 for each one produced, and annual fixed costs associated with production would...
Chapter 15 Capital Budgeting 45. LO.2 & LO.3 (Time line; payback; NPV) Holly's Fashions is considering expandi its building so it can stock additional merchandise for travelers and tourists. Store man ager Jill Eliason anticipates that building expansion costs would be $190,000. Th firm's suppliers are willing to provide inventory on a consignment basis so there would be no additional working capital needed upon expansion. Annual incremental fixed cash costs for the store expansion are expected to be as follows:...
Question 3 (1 point) Which of the following statements regarding investment in working capital is incorrect? working capital is recovered at the end of the project. investment in working capital, unlike investment in plant and equipment, represents a positive cash flow. the cash flow is measured by the change in working capital, not the level of working capital. the working capital may change during the life of the project. Question 4 (1 point) A company is considering a 5-year project...
Most questions answered within 3 hours.
-
Calculate how many grams of 30% and how many grams of
10% coal tar paste must...
asked 1 minute from now -
All else equal and given the current system of exchange rates,
if the United States enters...
asked 7 minutes ago -
The charge on a capacitor in an ideal LC oscillator
with an angular frequency of 200...
asked 15 minutes ago -
A 5.5 MW variable-speed wind generator with 0.92 power factor is
providing power to a grid...
asked 14 minutes ago -
Two wires, each of length 1.9 m, are stretched between two fixed
supports. On wire A...
asked 18 minutes ago -
Help me solve this in C++
Rewrite the code to use array instead of linked lists....
asked 25 minutes ago -
1.)Suppose I collect data on the average price of Yuengling (a
type of beer) at every...
asked 33 minutes ago -
Test the claim that the proportion of people who own cats is
smaller than 50% at...
asked 57 minutes ago -
Question 1 Continues
*** This is the NODE ADT you need. I hope this will help...
asked 58 minutes ago -
Show the rearrangements of the carbon skeleton in the following
carbocations. Note that in some cases...
asked 3 hours ago -
Use a z -Table to find the specified area.
Between the mean and 3.01 deviations from...
asked 3 hours ago -
Consider the following reaction at equilibrium. What will happen
if O2 is added to the reaction?...
asked 4 hours ago