A Capital Budgeting Problem A cargo company is evaluating whether to replace an existing cargo ship...
Fantastic news! We've Found the answer you've been seeking!
Question:
Transcribed Image Text:
A Capital Budgeting Problem A cargo company is evaluating whether to replace an existing cargo ship with a new ship or repair the current ship. Its calculations show that investing in a new ship is a zero NPV project. It wants your help to estimate the NPV of the repair option. The following information is provided. Total repair cost=$810,000 Total annual operating costs-$1,100,000 Expected annual increase in sales and costs-4% Annual revenue-$1,200,000 Tax rate-21% Expected life of renovated ship-12 years Expected salvage value after 12 years=$0 The seven-year MACRS schedule will be used for depreciation Firm's cost of capital=11% Apply all chpital budgeting techniques. B6 fx 0.11 C A 13 Investment 14 Revenue 15 Less cost 16 Less depreciation 17 NOPBT 18 Less taxes 19 NOPAT 20 Add back dep'n 21 Add/subtract NWC needs 22 Salvage value 23 Project cash flows 24 PV 25 NPV 26 IRR 27 Payback 28 PV 29 Discounted PB 30 MIRR 31 PI 32 33 34 A Capital Budgeting Problem A cargo company is evaluating whether to replace an existing cargo ship with a new ship or repair the current ship. Its calculations show that investing in a new ship is a zero NPV project. It wants your help to estimate the NPV of the repair option. The following information is provided. Total repair cost=$810,000 Total annual operating costs-$1,100,000 Expected annual increase in sales and costs-4% Annual revenue-$1,200,000 Tax rate-21% Expected life of renovated ship-12 years Expected salvage value after 12 years=$0 The seven-year MACRS schedule will be used for depreciation Firm's cost of capital=11% Apply all chpital budgeting techniques. B6 fx 0.11 C A 13 Investment 14 Revenue 15 Less cost 16 Less depreciation 17 NOPBT 18 Less taxes 19 NOPAT 20 Add back dep'n 21 Add/subtract NWC needs 22 Salvage value 23 Project cash flows 24 PV 25 NPV 26 IRR 27 Payback 28 PV 29 Discounted PB 30 MIRR 31 PI 32 33 34
Expert Answer:
Answer rating: 100% (QA)
In the given problem Depreciation is calculated on the basis of MACRs 7 year The computation of depreciation for 12 year is as follows Year Depreciati... View the full answer
Related Book For
Posted Date:
Students also viewed these organizational behavior questions
-
A corporation has decided to replace an existing asset with a newer model. Two years ago, the existing asset originally cost $30,000 and was being depreciated under MACRS using a five-year recovery...
-
A textile processing company is evaluating whether it should retain the current bleaching process that uses chlorine dioxide or replace it with a proprietary oxypure process. The relevant information...
-
Cool Cat Cabinets (CCC) is evaluating whether to replace an aging machine. The existing machine is being depreciated at $40,000 per year, whereas the depreciation for a new machine is expected to be...
-
Derive the transfer function of the circuit shown in figure below (for an ideal op amp) and show that it can be written in the form - V. -R2/R1 V," [1+ ( +j) Where w1 = 1/C,R1 and w2 = 1/ C2R2....
-
1. Which organization was more effective at developing the prototype and meeting the deadlines? Was its level of effectiveness due to the goals chosen by top management? 2. Predict which organization...
-
What is a company's hypothetical income tax provision and what is its importance in a company's disclosure of its income tax provision in the tax footnote?
-
Pay-later options are options for which the buyer is not required to pay the premium up front (i.e., at the time that the contract is entered into). At expiration, the holder of a pay-later option...
-
Use the information in the adjusted trial balance reported in Exercise 4-4 to compute the current ratio as of the balance sheet date (round the ratio to two decimals). Interpret the current ratio for...
-
1. In the election shown below under the Plurality method, explain why voters in the third column might be inclined to vote insincerely. How could it affect the outcome of the election? Number of...
-
Roland Company began operations on December 1 and needs assistance in preparing December 31 financial statements, including its year-end adjustments. The Tableau dashboard is provided to assist in...
-
Pitt Jones Company had the following activities, allocated costs, and allocation bases: The above activities are carried out at two of their regional offices. What is the cost per hour for the...
-
If a firm does not want to be taken over, what are some options it has? How can a firm defend against an unwanted merger or takeover?
-
If a firm acquires a supplier, what type of merger is this? If they acquire a firm that does a similar type of business, what type of merger is this? Explain.
-
Graph two bonds each with a face value of $1000.Both bonds have a coupon rate of 14.1% paid SEMIANNUALY. Bond L has a maturity of 20 years and Bond S has a maturity of one year. Compute the value of...
-
The expected returns and standard deviation of returns for two securities are as follows: X Y 15% 15% Standard deviation 10% 20% Expected return Assume that the correlation between the returns of the...
-
A firm faces the following inverse demand curve: = P 500 0.25Q Where: Q is the monthly production P is price, measured in dollars per unit. The firm also has a total cost (TC) function of: TC = 200Q....
-
A three-storey residential (ordinary) building is shown in Figure 1, where the value next to each column indicates the corresponding lateral stiffness. The mass of each whole floor is 2000 tonnes....
-
Name some of the various types of financial intermediaries described in the chapter and indicate the primary reason(s) each was created.
-
Currently, it takes five days from the time customers mail payments until Shark Bait Rafts (SBR) deposits them. SBR would like to set up a lockbox collection system that would reduce this collection...
-
Fifteen (15) years ago, your parents purchased an investment for $2,500. If the investment earned 6 percent interest each year, how much is it worth today?
-
Rebecca would like to set up an account to supplement her parents retirement income for the next 15 years. (a) If the account earns 7.2 percent compounded monthly, how much will Rebecca have to...
-
Online purchases are commonly governed by a sales contract between the online merchant and the consumer in the terms of use found as a link on the sellers home page. Often, purchasers are informed...
-
Zapata, a Texas company, entered into a contract for Unterweser, a German company, to tow an oil-drilling rig from Louisiana to Italy. The contract stated, Any dispute arising must be treated before...
-
Aangi sends Anil a purchase order stating that only her terms apply and that in the event of a dispute between the parties in connection with the transaction, the dispute will be submitted to...
Study smarter with the SolutionInn App