3. Techron I costs $290,000, has a 3 year life and operating cash flows of -$50,000...

 

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3. Techron I costs $290,000, has a 3 year life and operating cash flows of -$50,000 per year. If the discount rate is 10%, what is the Equivalent Annual Cost? Capital Investment In-Class Exercise Cost Projects Equivalent Annual Cost Techron Discount Rate: Techron 1 Present Value of Techron 1 Equivalent Annual Cost Techron 1 Input Parameters Cost of Capital Income Tax Rate Initial Investment Sales Cash Costs Depreciation Earnings before Taxes Taxes Net Income Add Back Depreciation Cash Flows from Assets 10.00% Net Present Value 4. Sirius, Inc. is considering a 3 year project that requires an initial investment of $2.7 million. The asset will be depreciated straight-line to zero over its 3 year life. At the end of 3 years there will be no salvage value. The project is estimated to generate $2,080,000 in annual sales, with cash costs of $775,000. The tax rate is 35%. What is the project's NPV? Should Sirius move forward with the project? 12.00% 35.00% Time 0 Year 0 $ (2,700,000.00) Time 1 Year 1 Time 2 $ 2,080,000.00 $ (775,000.00) $ $ Year 2 Time 3 2,080,000.00 $ (775,000.00) $ Year 4 2,080,000.00 (775,000.00) 3. Techron I costs $290,000, has a 3 year life and operating cash flows of -$50,000 per year. If the discount rate is 10%, what is the Equivalent Annual Cost? Capital Investment In-Class Exercise Cost Projects Equivalent Annual Cost Techron Discount Rate: Techron 1 Present Value of Techron 1 Equivalent Annual Cost Techron 1 Input Parameters Cost of Capital Income Tax Rate Initial Investment Sales Cash Costs Depreciation Earnings before Taxes Taxes Net Income Add Back Depreciation Cash Flows from Assets 10.00% Net Present Value 4. Sirius, Inc. is considering a 3 year project that requires an initial investment of $2.7 million. The asset will be depreciated straight-line to zero over its 3 year life. At the end of 3 years there will be no salvage value. The project is estimated to generate $2,080,000 in annual sales, with cash costs of $775,000. The tax rate is 35%. What is the project's NPV? Should Sirius move forward with the project? 12.00% 35.00% Time 0 Year 0 $ (2,700,000.00) Time 1 Year 1 Time 2 $ 2,080,000.00 $ (775,000.00) $ $ Year 2 Time 3 2,080,000.00 $ (775,000.00) $ Year 4 2,080,000.00 (775,000.00)

Answer rating: 100% (QA)

Techron I Equivalent Annual Cost EAC Given Cost 290000 Life 3 years Operating Cash Flow 50000 per ye... View the full answer