Question: STM Inc. is considering a 4-year project with an initial cost of $763,289. The project will not directly produce sales but will reduce operating costs

STM Inc. is considering a 4-year project with an initial cost of $763,289. The project will not directly produce sales but will reduce operating costs by $298,125 a year. The equipment is depreciated straight-line to a zero book value over the life of the project. At the end of the project, the equipment will be sold for an estimated $40,664. The tax rate is 35%. The project will require $27,893 in extra inventory for spare parts and accessories. STM requires a 10% rate of return. What is the NPV of the project?

Step by Step Solution

There are 3 Steps involved in it

1 Expert Approved Answer

Step: 1 Unlock blur-text-image

Question Has Been Solved by an Expert!

Get step-by-step solutions from verified subject matter experts

Step: 2 Unlock

Step: 3 Unlock

Students Have Also Explored These Related Finance Questions!

STM Inc. is considering a 4-year project with an initial cost of $540,739. The project will not directly produce sales but will reduce operating costs by $297,111 a year. The equipment is depreciated...

G 2 STM Inc. is considering a 4-year project with an initial cost of $792,032. The project will not directly produce sales but will reduce operating costs by $292,716 a year. The equipment is...

G 2 . STM Inc. is considering a 4-year project with an initial cost of $792,032. The project will not directly produce sales but will reduce operating costs by $292,716 a year. The equipment is de...

Q5)STM Inc. is considering a 4-year project with an initial cost of $658,950. The project will not directly produce sales but will reduce operating costs by $274,525 a year. The equipment is...

You are working on a bid to build four small apartment buildings a year for the next three years for a local community.This project requires the purchases of $900,000 of equipment which will be...

4. SPAIN Inc. is considering a 4-year project with an initial cost of $755,000. The project will not directly produce any sales but will reduce operating costs by $320,000 a year. The equipment is...

a. Peter is considering the purchase of one of two machines used in his industrial plant. Machine PP has a life of two years, costs $52 initially, and then $60 per year in maintenance costs. Machine...

A company is considering a 4-year project with an initial cost of $1,350,000. The project will not directly produce any sales but will reduce operating costs by $843,000 a year. The equipment is...

in NWC, what change occurs for NWC during year 1? Explain. (4 marks) 3. KKF Inc. is considering a 3-year project with an initial cost of $755,000. The project will not directly produce any sales but...

1. KKF Inc. is considering a 3-year project with an initial cost of $755,000. The project will not directly produce any sales but will reduce operating costs by $195,000 a year. The equipment is...

A marketing professor at UTPA is interested in the relationship between hours spent studying and total points earned in a course. The following is the data collected from 5 students. Please collect...

Suppose the spot rate is $1.08/. The dollar then appreciates by 25 percent against the euro. What is the new exchange rate in dollars per euro?

Greg, Allan and George are partners in a small law firm specialising in family and property law and share a large city office where they operate their business. Their partnership agreement states...

Bijou Theater has two service desks, one at each entrance of the theater. Customers arrive at each service desk at an average of one every five minutes. The service rate at each service desk is three...

3.21 The probability of A is 0.60, the probability of B is 0.40, and the probability of either is 0.76. What is the probability of both A and B?

3.19 The probability of A is 0.60, the probability of B is 0.45, and the probability of either is 0.80. What is the probability of both A and B?

3.22 The probability of A is 0.60, the probability of B is 0.45, and the probability of both is 0.30. What is the probability of either A and B?