1. The following data has been provided about a proposed investment project: equipment cost $50,000 required working...
Question:
1. The following data has been provided about a proposed investment project:
| equipment cost | $50,000 |
| required working capital | $30,000 |
| equipment salvage value | $0 |
| Project Annual Cash Inflows | $20,000 |
| return fee required | 20% |
| project life | 8 years |
The working capital would be released for use elsewhere at the end of the project. What is the net present value of the project?
2. Riveros, Inc., is considering the purchase of a machine that would cost $120,000 and last 8 years. After 8 years, the machine would have a salvage value of $29,000. The machine would reduce labor and other costs by $25,000 per year. An additional working capital of $9,000 would be needed immediately. All this working capital would be recovered at the end of the machine's useful life. The company requires a minimum return before taxes of 18% in all investment projects. What is the net present value of the proposed project ?
3. Pro-Mate, Inc. is a producer of sports equipment. The company is considering the purchase of a machine to produce baseball bats. The machine will cost $60,000 and will have a useful life of 10 years. The following annual income and expenses are projected:
| Sales | $40,000 | |
| Less expenses: | ||
| Out-of-pocket production costs | $15,000 | |
| selling expenses | 9,000 | |
| Depreciation | 6,000 | 30,000 |
| operating margin | $10,000 |
The machine will have no salvage value. Assume that the cash flows occur uniformly over a year except for the initial investment.
What is the amortization period of the new machine?
Expert Answer:
1 To calculate the net present value NPV of the project we need to discount the future cash inflows and outflows to their present values using a disco... View the full answer
