5. Analysis of an expansion project Lumbering Ox Truckmakers is considering an investment that will have...
Fantastic news! We've Found the answer you've been seeking!
Question:
Transcribed Image Text:
5. Analysis of an expansion project Lumbering Ox Truckmakers is considering an investment that will have the following sales, variable costs, and fixed operating costs: Sales (units) Sales price Year 1 5,500 Year 2 Year 3 Year 4 5,200 5,700 5,820 Variable cost per unit Fixed costs, excluding depreciation Accelerated depreciation rate $42.57 $43.55 $22.83 $22.97 $23.45 $23.87 $66,750 $68,950 $69,690 $68,900 $44.76 $46.79 33% 45% 15% 7% This project will require an investment of $10,000 in new equipment. The equipment will have no salvage value at the end of the project's four-year life. Lumbering Ox Truckmakers pays a constant tax rate of 40%, and it has a required rate of return of 11%. When using accelerated depreciation, the project's net present value (NPV) is When using straight-line depreciation, the project's NPV is Using the depreciation method will result in the greater NPV for the project. No other firm would take on this project if Lumbering Ox Truckmakers turns it down. How much should Lumbering Ox Truckmakers reduce the NPV of this project if it discovered that this project would reduce one of its division's net after-tax cash flows by $400 for each year of the four-year project? $1,241 $1,365 O $745 $931 The project will require an initial investment of $10,000, but the project will also be using a company-owned truck that is not currently being used. This truck could be sold for $4,000, after taxes, if the project is rejected. What should Lumbering Ox Truckmakers do to take this information into account? Increase the amount of the initial investment by $4,000. Increase the NPV of the project by $4,000. The company does not need to do anything with the value of the truck because the truck is a sunk cost. 5. Analysis of an expansion project Lumbering Ox Truckmakers is considering an investment that will have the following sales, variable costs, and fixed operating costs: Sales (units) Sales price Year 1 5,500 Year 2 Year 3 Year 4 5,200 5,700 5,820 Variable cost per unit Fixed costs, excluding depreciation Accelerated depreciation rate $42.57 $43.55 $22.83 $22.97 $23.45 $23.87 $66,750 $68,950 $69,690 $68,900 $44.76 $46.79 33% 45% 15% 7% This project will require an investment of $10,000 in new equipment. The equipment will have no salvage value at the end of the project's four-year life. Lumbering Ox Truckmakers pays a constant tax rate of 40%, and it has a required rate of return of 11%. When using accelerated depreciation, the project's net present value (NPV) is When using straight-line depreciation, the project's NPV is Using the depreciation method will result in the greater NPV for the project. No other firm would take on this project if Lumbering Ox Truckmakers turns it down. How much should Lumbering Ox Truckmakers reduce the NPV of this project if it discovered that this project would reduce one of its division's net after-tax cash flows by $400 for each year of the four-year project? $1,241 $1,365 O $745 $931 The project will require an initial investment of $10,000, but the project will also be using a company-owned truck that is not currently being used. This truck could be sold for $4,000, after taxes, if the project is rejected. What should Lumbering Ox Truckmakers do to take this information into account? Increase the amount of the initial investment by $4,000. Increase the NPV of the project by $4,000. The company does not need to do anything with the value of the truck because the truck is a sunk cost.
Expert Answer:
Posted Date:
Students also viewed these finance questions
-
Alert Security Services Co. offers security services to business clients. The trial balance for Alert Security Services Co. has been prepared on the following end-of-period spreadsheet for the year...
-
A spherical shell with inner radius r 1 and outer radius r 2 has surface temperatures T 1 and T 2 , respectively, where T 1 > T 2 . Sketch the temperature distribution on T-r coordinates assuming...
-
Discuss the human resources departments involvement in internal controls.
-
Describe how monopoly regulation influences output, price, economic profit, and efficiency.
-
The capital accounts of Jonathan Faber and Faheem Ahmad have balances of $150,000 and $110,000, respectively. Lauren Wells and Rachel Lee are to be admitted to the partnership. Wells buys one-fifth...
-
Suppose you are a supply chain manager tasked with finding a location for a new 7-Eleven store in Windsor, Ontario. Can you please describe the process you would go through to identify potential...
-
What statistical test is typically used when groups have been matched in an experiment? Independent-samples t-test. Chi-squared test. Dependent-samples t-test. ANOVA
-
Did you mean: in this phrase What is the relationship between the employment status of parents and access to satellite internet services and a person's educational attainment in the city of Alabama?...
-
Economic Analysis for Managers B. Connect outcomes from Courseto Workplace -Describe specific (to your workplace/job) examples of connections you are making between the learning in your course and...
-
There are three primary organizational structures relevant to projects and project management: 1. Functional structure 2. Projectized structure 3. Matrix structure Out of the three which...
-
Develop a visual merchandising strategy and illustration for your concept. for kids wear of Anita Dongre Indian brand Visually present product line for the highest sales impact and to generate sales...
-
Briefly define business algorithms and their role in business. This includes clarifying the meaning of the terms algorithm, artificial intelligence, intelligent agents, and augmented intelligence and...
-
Consider the game represented by the above matrix. Player 1's actions are A and B, and player 2's actions are C and D. In each cell, the first number is player 1's payoff, and the second number is...
-
As indicated by mutual fund flows, investors tend to beat the market seek safety invest in last year's winner invest in last years loser
-
Write a brief essay explaining the basic areas of law with which a forensic accountant is familiar. For each area, explain why the legal knowledge is important to the forensic accountant.
-
Find the Consulting Services section online. What does CS section 100 say about professional judgment with respect to estimating value?
-
Use a search engine to search using the phrase "forensic accounting services." Choose a couple of firms and click through their pages to determine descriptions of forensic accounting services they...
Study smarter with the SolutionInn App