Growth Enterprises believes its latest project, which will cost $110,000 to install, will generate a perpetual growing
Question:
Growth Enterprises believes its latest project, which will cost $110,000 to install, will generate a perpetual growing stream of cash flows. The cash flow at the end of the first year will be $7,500, and cash flows in future years are expected to grow indefinitely at an annual rate of 1%.
If the discount rate for the project is 12%, what is the project NPV?
NPV=
What is the internal rate of return (IRR) for the project?
IRR = %
3. Because of its age, your car costs $6,500 annually in maintenance expense. You could replace it with a newer vehicle costing $10,400 that would be expected to have a life of 4 years. If your opportunity cost of capital is 9%, by how much must maintenance expense decrease on the new vehicle to justify its purchase?
4. Daily Enterprises is purchasing a $14,000,000 machine. The machine will depreciated using straight-line depreciation over its 5 year life and will have no salvage value. The machine will generate revenues of $8,000,000 per year along with costs of $2,000,000 per year.
If Daily's marginal tax rate is 37%, what will be the cash flow in each of years one to 5 (the cash flow will be the same each year)?
5. A project requires an increase in net working capital of $500,000 at time 0 that will be recovered at the end of its 20 year life. If opportunity cost of capital is 1%, what is the effect on the NPV of the project? Enter your answer rounded to two decimal places.
Effect on NPV=
6. Daily Enterprises is purchasing a $8,000,000 machine. The machine will be depreciated using straight-line depreciation over its 9 year life and will have no salvage value. The machine will generate revenues of $8,000,000 per year along with costs of $3,000,000 per year.
If Daily's marginal tax rate is 36%, what will be the cash flow in each of years 1 to 9 (the cash flow will be the same each year)?
Fundamentals of Corporate Finance
ISBN: 978-0077861629
8th edition
Authors: Richard Brealey, Stewart Myers, Alan Marcus