Expected to pay for itself from the cost savings

Assignment Help Financial Management
Reference no: EM131074632

Company Z is considering purchasing a robotic welding machine which is estimated to reduce expenses by $54,000 per year. The machine will have no effect on revenues but is expected to pay for itself from the cost savings. The welding machine costs $126,000 and will be depreciated on a straight-line basis for 3-years ($42,000 per year at t=1, t=2, and t=3). The machine is expected to be sold after 3 years for $30,000. The purchase of the machine would require an increase in inventory of $6,000 and an increase in accounts payable of $1,000 at t=0, and the net operating working capital is expected to be recovered at t=3. Company Z’s marginal tax rate is 40%. Fill in the following information and calculate the NPV assuming the project’s cost of capital is 9%.

Year 0 Year 1 Year 2 Year 3

Operating Cash Flow ___________ ___________ __________

Capital Spending _____________ ___________

Reference no: EM131074632

Questions Cloud

What is the earliest month the option would be exercised : An American put with a strike price of 32 and a current stock price of 33 matures in 6 months. With an interest rate of 5% and a volatility of 30%, what is the earliest month the option would be exercised? Use one month as the time step.
What rate of return is the buyer expecting to make : Joe Black just won a $550,000 lottery in Pennsylvania. Instead of receiving a lump sum, he found that he would receive $25,500 annually (end of year) for 20 years. Joe is 75 years old and wants his money now. He has been offered $140,827 to sell his ..
How much tax do you owe on the interest payment : You purchase a 6 percent $10,000 bond for $9,350 plus $163 in accrued interest for a total outlay of $9,513. Subsequently you receive a $350 interest payment. You are in the 20 percent income tax bracket. How much tax do you owe on the interest payme..
Pay for the bond and obtain effective annual yield : A 20-year bond has 8% annual coupons, a par value of $1000, and a redemption value of $1000. Coupons are invested at a nominal annual rate of 5% convertible semi-annually. X is the highest price that an investor can pay for the bond and obtain an eff..
Expected to pay for itself from the cost savings : Company Z is considering purchasing a robotic welding machine which is estimated to reduce expenses by $54,000 per year. The machine will have no effect on revenues but is expected to pay for itself from the cost savings. Fill in the following inform..
What is the total market value of this firm : The current stock price for a company is $34 per share, and there are 7 million shares outstanding. This firm also has 170,000 bonds outstanding, which pay interest semiannually. If these bonds have a coupon interest rate of 9%, 19 years to maturity,..
Decided to add leverage to their financial operations : Martin and Sons (M and S) currently is an all equity firm with 48,000 shares of stock outstanding at a market price of $25 a share. The company's earnings before interest and taxes are $82,000. M and S has decided to add leverage to their financial o..
What spread position would you use to effect an arbitrage : Suppose call and put prices are given by: Strike 75 80 Call premium 7 8 Put premium 4 10. What no-arbitrage condition is violated by the call premiums? What spread position would you use to effect an arbitrage?
What is the firm’s market value capital structure : Titan Mining Corporation has 8.6 million shares of common stock outstanding, 300,000 shares of 5 percent preferred stock outstanding, and 160,000 7.4 percent semiannual bonds outstanding, par value $1,000 each. What is the firm’s market value capital..

Reviews

Write a Review

 

Financial Management Questions & Answers

  Alternative offering prices on existing price per share

The Newton Company has 120,000 shares of stock that each sell for $65. Suppose the company issues 9,000 shares of new stock at the following prices: $65, $50, and $45. What is the effect of each of the alternative offering prices on the existing pric..

  How much money can anthony borrow

How much money can Anthony borrow at 8% interest compounded semiannually if the loan is to be repaid at half-year intervals for 12 years and he can afford to pay $483 per half-year? Round to the nearest cent as needed.

  What is the expected rate of return on this stock

Dee's Fashions has a growth rate of 5.2 percent and is equally as risky as the market while its stock is currently selling for $28 a share. The overall stock market has a return of 12.6 percent and a risk premium of 8.7 percent. What is the expected ..

  What was your real rate of return based on fisher formula

Last year, you earned 11.67 percent on your investments. During that time period, inflation averaged 6.4 percent. What was your real rate of return based on the Fisher formula?

  Transfer methods-advantages and disadvantages to parties

Fred and Ingred (married) have identified five possible ways that they could effect the transfer of the deli to Molly (their daughter-in-law).Describe the transfer methods and the advantages and disadvantages to the parties.

  What is the role of policy in disaster recovery

What is the general approach to disaster recovery as specified in Schmidt? What is the role of policy in disaster recovery? Compare and contrast shared systems, hot standby systems, and cold standby systems for disaster recovery.

  What is actual cost of the acquisition using company stock

Jackson C (JC). is being acquired by Sampson Security (SS) for $61,676 worth of SS stock. The incremental value of the acquisition is $5,600. JC has 2,942 shares of stock outstanding at a price of $20 a share. SS has 3,441 shares of stock outstanding..

  Determine the average investment in accounts receivable

Pretty Lady Cosmetic Products has an average production process time of forty days. Finished goods are kept on hand for an average of fifteen days before they are sold. Determine the average investment in accounts receivable, inventories, and account..

  Explain the automobile insurance

Explain the automobile insurance (listed below) and provide an appropriate example of this type of insurance. Discuss the relationship between risk and this type of insurance. Describe the risk management tools. Discuss the legal principles of risk a..

  What is the price of the stock nine years from today

Metallica Bearings, Inc., is a young start-up company. No dividends will be paid on the stock over the next nine years, because the firm needs to plow back its earnings to fuel growth. The company will then pay a dividend of $14.50 per share 10 years..

  Annual expense ratio is netted out of the funds return

You purchased 2,800 shares in the New Pacific Growth Fund on January 2, 2010, at an offering price of $55.70 per share. The front-end load for this fund is 5 percent, and the back-end load for redemptions within one year is 3 percent. If the operatin..

  After-tax net income difference in producing low calorie

Florida Citrus Inc. (FCI) estimates its taxable income at $9,000,000. The company is considering expanding its product line by introducing a low-calorie sport drink for next year. It expects that the additional taxable income next year from this spor..

Free Assignment Quote

Assured A++ Grade

Get guaranteed satisfaction & time on delivery in every assignment order you paid with us! We ensure premium quality solution document along with free turntin report!

All rights reserved! Copyrights ©2019-2020 ExpertsMind IT Educational Pvt Ltd