Morganville monorail company finance 4 tepper a the

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11. Morganville Monorail CompanyFinance4Tepper
(a) The NPV of this (bad) project is -19.12 million composed of :i. Investment (Construction Cost) = -\$200 xA202:5%=-\$3,117.83 millionii. After Tax Operating Revenue =11:02520²[+\$200²(1°:15)]²A502:5%=\$2,942.48millioniii. After Tax Operating Expenses =11:02520²[°\$5²(1°:15)]²A502:5%=- \$73.56 millioniv. Depreciation Tax Shields =11:02520²²(\$200²20)²140²:15³²A402:5%=\$229.79million(b)i.Higherbecause the bene´t of depreciation occurs sooner.ii. The track is pro´table once it opens. Delay of these pro´ts make the NPVlower.iii. In°ations makes NPVlower, because the depreciation tax shields are ´xed in nom-inal terms by law.iv.Higher. In absolute dollars a 2% increase in revenues is bigger than a 2% increasein expenses.v.Not enough information. You have to know the exact method to be sure.vi.Lower, MMC is giving up the chance to invest that money elsewhere while it is inuse here.vii.Same, After the track opens, it will not have losses that need to be o/set by otherprojects.12.(a) After-tax cost of 75 Lisa Liteline:NPVLiteline=°(75)(450)(:65):085°(10;000)(:65)°(10;000)(:65)(1:02)5(1:085)5°(1:02)5=°282;549:NPV of 1 Quimby Quickvolt:NPV1Quickvolt=°1900 +200(:65)(1:085)6°(310(:65)°110:833):085´1°1(1:085)6µ(1)=°2;235(2)where the annual depreciation tax savings is316:67²:35 = 110:833This amount must be paid every 6 years. The e/ective 6 year interest rate is(1:085)6°1 = 63:1%NPV45Quickvolts=45´°2;203:578°2;203:578:631µ(3)=°256;193:71(4))Buy Quickvolts(b)r= (1:085)(1:115)°1 = 20:98%. Higher costs. The value of depreciation tax shieldswill erode due to in°ation.
Finance5Tepper