Please Show Work, Thank You!! Pont Corporation has provided the following inform
ID: 2484390 • Letter: P
Question
Please Show Work, Thank You!!
Pont Corporation has provided the following information concerning a capital budgeting project:
Investment Required in Equipment: $160,000
Expected life of the project: 4
Salvage value of equipment: $0
Annual Sales: $470,000
Annual cash operating expenses: $340, 000
Working Capital Requirement: $20,000
One-time renovation expense in year 3: $70,000
The company's income tax rate is 30% and its after-tax discount rate is 10%. The working capital would be required immediately and would be released for use elsewhere at the end of the project. The company uses straight-line depreciation on all equipment. Assume cash flows occur at the end of the year except for the initial investments. The company takes income taxes into account in its capital budgeting.
1) The net present value of the entire project is closest to:
A. $123,268
B. $193,060
C. $109,608
D. $203,000
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Recent maintenance costs of Gallander Corporation are listed below:
Machine Hours Maintenance Costs
April: 727 $7,269
May: 725 $7,290
June: 720 $7,273
July: 641 $7,130
August: 671 $7,208
September: 728 $7,291
October: 710 $7,260
November: 707 $7,231
Management believes that maintenance cost is a mixed cost that depends on machine-hours.
2) Using the least-squares regression method, the estimate of the variable component of maintenance cost per machine-hour is closest to:
A) $1.85
B) $10.30
C) $1.67
D) $1.90
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Mitton Corporation is considering a capital budgeting project that would require investing $160,000 in equipment with an expected life of 4 years and zero salvage value. Annual incremental sales would be $440,000 and annual incremental cash operating expenses would be $320,000. The project would also require a one-time renovation cost of $0 in year 3. The company's income tax rate is 35% and its after-tax discount rate is 12%. The company uses straight-line depreciation. Assume cash flows occur at the end of the year except for the initial investments. The company takes income taxes into account in its capital budgeting.
3). The net present value of the entire project is closest to:
A. $279,496
B. $119,496
C. $208,000
D. $204,560
Explanation / Answer
net present value of the entire project is closest to $109,608.
initial invst 160000 useful life 4 Dep 40000 WC 20000 Sales 470000 cash operating exp 340000 Dep 40000 PBT 90000 Tax 27000 PAT 63000 Add: dep 40000 CF 103000 year 0 1 2 3 4 initial -160000 WC -20000 CF 103000 103000 103000 103000 WC recovery 20000 renovation exp -70000 CF -180000 103000 103000 33000 123000 DF 1 0.909 0.8264 0.7513 0.683 DCF -180000 93627 85119.2 24792.9 84009 NPV 107548.1Related Questions
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