ZuoTi.Pro
Question

Considering a new project to retrofit a pump. The initial cost of the project is $100,000,...

Considering a new project to retrofit a pump. The initial cost of the project is $100,000, and will save the company $25,000 per year in utility costs (income to the company). The salvage value of the pump after the 5 year life is $20,000. Use NPV at 8% interest rate to determine if this is a good investment. What is the payback?
business   economics   
0 0
Add a comment Improve this question Transcribed image text
Next > < Previous
Sort answers by oldest

Homework Answers

Answer #1

Y

Cashflow

DF=1/(1+0.08)^n

Discounted Cash flow = DF*Cash flow

0

-100000

1.00

-100000

1

25000

0.93

23148

2

25000

0.86

21433

3

25000

0.79

19846

4

25000

0.74

18376

5

45000

0.68

30626

NPV

13429

As the NPV value is positive, the investment is worth and hence is a good decision to invest

Y

Cashflow

Cumulative cash flow

0

-100000

-100000

1

25000

-75000

2

25000

-50000

3

25000

-25000

4

25000

0

5

45000

45000

Payback is a period where cumulative cash flow becomes zero and hence the payback is 4 years

0 0
Add a comment
Know the answer?
Add Answer to:
Considering a new project to retrofit a pump. The initial cost of the project is $100,000,...
Your Answer:

Post as a guest

Your Name:

What's your source?

Earn Coins

Coins can be redeemed for fabulous gifts.

Log In

Sign Up

Not the answer you're looking for? Ask your own homework help question. Our experts will answer your question WITHIN MINUTES for Free.
Similar Homework Help Questions

  • A project Kyle Company is considering will require an initial investment of $100,000 and is expected...

    A project Kyle Company is considering will require an initial investment of $100,000 and is expected to generate the following cash flows: Year 1    $35,000 Year 2    $25,000 Year 3    $20,000 Year 4    $20,000 Year 5    $15,000 What is the project’s payback period?

  • Summer Tyme, Inc., is considering a new 3-year expansion project that requires an initial fixed asset...

    Summer Tyme, Inc., is considering a new 3-year expansion project that requires an initial fixed asset investment of $4.698 million. The fixed asset will be depreciated straight-line to zero over its 3-year tax life, after which time it will be worthless. The project is estimated to generate $4,176,000 in annual sales, with costs of $1,670,400. Required: If the tax rate is 35 percent, what is the OCF for this project? rev: 09_18_2012 $2,176,740 $610,740 $2,505,600 $2,067,903 $2,285,577 Dog Up! Franks...

  • Graziano Corporation (GC) is considering a project to purchase new equipment. The equipment would be depreciated...

    Graziano Corporation (GC) is considering a project to purchase new equipment. The equipment would be depreciated by the straight-line method over its 3-year life and would have a zero-salvage value. The project requires an investment of $6,000 today on net working capital. Revenues and other operating costs are expected to be constant over the project's 3-year life. However, this project would compete with other company’s products and would reduce its pre-tax annual cash flows of $5,000 per year. The investment...

  • Summer Tyme, inc., is considering a new three year expansion project that requires an initial fixed...

    Summer Tyme, inc., is considering a new three year expansion project that requires an initial fixed asset investment of $3.9 million. The fixed asset will be depreciated straight line to zero over the life of the project, after which time it will be worthless. The project is estimated to generate $2650000 in annual sales, with costs of $840000 and a tax rate of 35 percent. The required return on the project is 12 percent. a) What is the operating cash...

  • Telecom Italia is considering the investment in a capital project. The initial cost in year 0...

    Telecom Italia is considering the investment in a capital project. The initial cost in year 0 is $130,000 to be depreciated straight over 5 years to an expected salvage value of $15,000. The firm’s tax rate is 35% and it has a 10% cost of capital (the firm's discount rate, or "hurdle" rate). For this project an additional investment in working capital of $12,000 is required and it will be recovered in full at the end of the project’s life....

  • Payback period   The Ball Shoe Company is considering an investment project that requires an initial investment...

    Payback period   The Ball Shoe Company is considering an investment project that requires an initial investment of $534,000 and returns​ after-tax cash inflows of $90,514 per year for 10 years. The firm has a maximum acceptable payback period of 8 years. a.  Determine the payback period for this project. b.  Should the company accept the​ project?

  • A company is considering launching a new product. The initial startup costs will be $100,000 and...

    A company is considering launching a new product. The initial startup costs will be $100,000 and the product will provide returns of $40,000 in year 1, 40,000 in year 2 and $31,757.60 in the third year. a) Calculate the NPV using a MARR of 5% Calculate the NPV using a MARR of 7% Calculate the NPV using a MARR of 6% Calculate the IRR of the project. 3. You have decided to start a new magazine. Minum will be targeted...

  • IBT Tech Inc is considering a new 3-year investment project that requires an initial fixed asset...

    IBT Tech Inc is considering a new 3-year investment project that requires an initial fixed asset investment of $4.49 million. The fixed asset will be depreciated straight-line to zero over its three-year life. The project is estimated to generate $2,950,000 in sales per year with additional costs of $952,000 per year. The tax rate is 30% and the required return (appropriate discount rate) is 16%. The fixed asset should have a market (or salvage) value of $595,000 at the end...

  • IBT Tech Inc is considering a new 3-year investment project that requires an initial fixed asset...

    IBT Tech Inc is considering a new 3-year investment project that requires an initial fixed asset investment of $4.49 million. The fixed asset will be depreciated straight-line to zero over its three-year life. The project is estimated to generate $3,010,000 in sales per year with additional costs of $905,000 per year. The tax rate is 30% and the required return (appropriate discount rate) is 16%. The fixed asset should have a market (or salvage) value of $595,000 at the end...

  • Your company is considering a new project. The project requires to purchase an equipment of $100,000....

    Your company is considering a new project. The project requires to purchase an equipment of $100,000. The equipment will be depreciated over the five years period with straight-line depreciation. Revenues and other operating costs are expected to be constant over the project's 10-year expected operating life. The expected revenue is $50,000 per year, and the operating cost (excluding depreciation) is $25,000. The tax rate is 30%. What is the expected cash flow in year 5? (C) $3,500 $17,500 $23,500 $25,000...

ADVERTISEMENT
Free Homework Help App
Download From Google Play
Scan Your Homework
to Get Instant Free Answers
Need Online Homework Help?
Ask a Question
Get Answers For Free
Most questions answered within 3 hours.
ADVERTISEMENT
ADVERTISEMENT
ADVERTISEMENT