an additional investment of 217000 This investment will be depreciated using

# An additional investment of 217000 this investment

This preview shows page 47 - 51 out of 62 pages.

an additional investment of \$217,000. This investment will be depreciated using MACRS and a 3-year life. After 4 years, the equipment will have an economic and book value of zero. The firm’s tax rate is 30%. What is the net present value of the project? The discount rate is 10%. (Do not round intermediate calculations. Round your answer to the nearest dollar amount.)
should be used for the actual calculations. All figures in thousands 0 1 2 3 4 Net worki ng capita l \$ 351 \$423 \$ 144 \$ 81 \$ 0 Inve stmen t in NWC 351 72 −279 −63 −81 Inve stmen t in plant & equip ment 217 0 0 0 0 Cash flow from invest ment activit y \$ −568 \$−72 \$ +279 \$ +63 \$ +81 All figures in thousands 0 1 2 3 4 Reven ue \$ 1,170.0 0 \$ 1,410.0 0 \$ 480.00 \$ 270.00 Cost 390.00 470.00 160.00 90.00 Depre ciation 72.30 96.50 32.10 16.08 Pretax profit 707.67 843.54 287.86 163.92 Taxes 212.30 253.06 86.36 49.18 Net income 495.37 590.48 201.50 114.74
Depre ciation 72.33 96.46 32.14 16.08 Operat ing cash flow \$567.70 \$686.94 \$ 233.64 \$ 130.82 Total cash flow \$−568 \$495.70 \$965.94 \$ 296.64 \$ 211.82 NPV = −\$568 + \$495.70 + \$965.94 + \$296.64 + \$211.82 = \$1,048.480, or \$1,048,477 1.10 1.10 2 1.10 3 1.10 4Ilana Industries, Inc., needs a new lathe. It can buy a new high-speed lathe for \$1.3 million. The lathe will cost \$48,000 per year to run, but will save the firm \$141,000 in labor costs, and will be useful for 10 years. Suppose that for tax purposes, the lathe will be depreciated on a straight-line basis over its 10-year life to a salvage value of \$370,000. The actual market value of the lathe at that time also will be \$370,000. The discount rate is 8%, and the corporate tax rate is 35%. What is the NPV of buying the new lathe? (Negative amount should be indicated by a minus sign. Enter your answer in dollars not in millions. Do not round intermediate calculations. Round your answer to 2 decimal places.)
10]In a slow year, Deutsche Burgers will produce 2.9 million hamburgers at a total cost of \$5.4 million. In a good year, it can produce 5.4 million hamburgers at a total cost of \$6.1 million. What are the variable and fixed costs of hamburger production? (Enter your answers in dollars not in millions. Round "Variable cost" to 2 decimal places.)

#### You've reached the end of your free preview.

Want to read all 62 pages?