Number 2 please Problem Solving (60 pts.) 1) What is the NPV of a $45,000 projec

Question

Number 2 please

Problem Solving (60 pts.) 1) What is the NPV of a $45,000 project that is expected to have an after-tax cash flow of S14,000 for the t. first two years, $10,000 for the next two years, and $8,000 for the fifth year? Use a 10% discount rate Would you accept the project? WHY? (20 pts.) 2) Bull Gator Industries is considering a new assembly line costing $6,000,000. The assembly lihe wil be fully depreciated by the simplified straight line method over its 5 year depreciable life. Operating coshs of the new machine are expected to be $1,100,000 per year. Ihe existing assembly line has 5 years if sold today ly depreciated and has a cu the company would receive $2,400,000 for the existing machine. Annual operating costs on the existig machine a e 2 100,000 per year. Bull Gator is in the 46% marginal tax bracket and has a requ redret of return of 12%. Calculate the net present value of replacing the existin outlay CFo, the project NPV). (40 pts.) g machine. (Hint: a) First calculate the imtial ) then calculate the project's incremental Free Cash Flows, CF, to CF s c) then calculate

Explanation / Answer

a. Calculate Initial Outlay Cost of new Assembly Line $6,000,000 Sale of old Assembly line today -$2,400,000 Tax savings from sale ($3,000,000 - $2,400,000) x 46% -$276,000 Net Initial Outlay $3,324,000 b) Incremental Free Cash Flows Incremental savings on operating cost = ($2100000 - $1100000) $1,000,000 Incremental Depreciation = old $3000000/5 - new $6000000/5 -$600,000.00 Incremental EBIT $400,000 Less: Taxes (@ 46%) -$184,000.00 Net Income $216,000 Add: Depreciation $600,000.00 -Change in Capital Spending $0.00 - change in working Capital $0.00 Incremental Free Cashflow Cf1 to Cf 5 $816,000 Year Cash flow PV @12% Present Value 0 -3324000 1 -3324000 1 $816,000 0.8929 $728,571 2 $816,000 0.7972 $650,510 3 $816,000 0.7118 $580,813 4 $816,000 0.6355 $518,583 5 $816,000 0.5674 $463,020 NPV -$382,502.62

Related Questions

Navigate

• Browse (All)
• Browse N
• Subjects

---

---

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.