Required return on the project and pretax cost savings

Assignment Help Financial Management
Reference no: EM13914599

Your firm is contemplating the purchase of a new $536,500 computer-based order entry system. The system will be depreciated straight-line to zero over its 5-year life. It will be worth $52,200 at the end of that time. You will be able to reduce working capital by $72,500 (this is a one-time reduction). The tax rate is 34 percent and your required return on the project is 16 percent and your pretax cost savings are $151,050 per year. Requirement 1: What is the NPV of this project?

Reference no: EM13914599

Questions Cloud

Discuss how the pvnb would have changed if the epa had used : Discuss how the PVNB would have changed if the EPA had used a social discount rate of 8 percent.
Some loans-profits on others is called cross-subsidization : Imagine that a bank will only lend if it can earn a rate of return of 6% on a loan. Further, imagine it incurs administrative costs of $40 per loan it makes, regardless of the size of the loan. Throughout the problem, assume for simplicity that the l..
Effect of journal entries on financial statements : The preceding 13 different accounting events are presented in general journal format. Use a horizontal statements model to show how each event affects the balance sheet, income statement and statement of cash flows. Indicate whether the event increas..
Compute receivables turnover and days sales uncollected : Compute receivables turnover and days' sales uncollected for 2011 and 2010 for CVS and Walgreens. Accounts receivable in 2009 were $5,457 million for CVS and $2,496 million for Walgreens.
Required return on the project and pretax cost savings : Your firm is contemplating the purchase of a new $536,500 computer-based order entry system. The system will be depreciated straight-line to zero over its 5-year life. It will be worth $52,200 at the end of that time. The tax rate is 34 percent and y..
Different approaches to system installation : What are the different approaches to system installation? Which is the most costly and least expensive? What are the risks with each method?
What is the expected number of interruptions per day : The IT manager at a large company has developed the following probability distribution for the number of interruptions per day. What is the expected number of interruptions per day? What is the standard deviation in the number of interrup..
Becoming a multicultural teacher : According to Nieto and Bode (2008), "Becoming a multicultural teacher ...means first becoming a multicultural person" (p. 392). Throughout this course, we will discover ways to create multicultural learning environments that are responsive to the ..
Find the present value of the system : To examine the implications of selecting various discount rates, reconsider the water filtration system example in the text but change the dis- count rate from 10 percent to 5 percent. Find the present value of the system.

Reviews

Write a Review

 

Financial Management Questions & Answers

  Could have a substantial negative effect on our liquidity

This statement from the 10-K filed by Bear Stearns for the Fiscal year 2007 indicates that management was aware that the firm was exposed to a run by other banks. “An inability to raise money in the long-term or short-term debt markets, or to engage ..

  What is the dispersion trade

Suppose that the AB2 is an equally-weighted stock index of two stocks; it is designed as simply the sum of the two stocks’ prices. Stock A has a volatility of .2, stock B has a volatility of .4, and the current correlation between the two stocks is ...

  Difference between the present value of the settlement

A brilliant young scientist is killed in a plane crash. It is anticipated that he could have earned $240,000 a year for the next 50 years. The attorney for the plaintiff’s estate argues that the lost income should be discounted back to the present at..

  What is the exact real rate

Treasury bills are currently paying 5 percent and the inflation rate is 3.2 percent. What is the approximate real rate of interest? What is the exact real rate?

  Assume the risk-free rate-market risk premium

AllCity Inc is financed 40% with debt, 10% with preferred stock, and 50% with common stock. Its pretax cost of debt is 6%. Its preferred stock pays an annual dividend of $2.50 and is priced at $30. It has an equity beta of 1.1. Assume the risk-free r..

  Perpetual annual disbursement beginning

An investment of $100,000 is set up in a trust, earning 8% per year. Annual disbursements of $10,000 are made at the end of the first 10 years. If after 10 years the annual disbursements are adjusted so that they may be made indefinitely, the perpetu..

  Two projects are mutually exclusive

For a project to have more than one IRR, then both IRRs must be greater than the WACC. If two projects are mutually exclusive, then they are likely to have multiple IRRs. If a project is independent, then it cannot have multiple IRRs.

  What it means to perfect the banks security interest

Explain what it means to perfect the bank's security interest  in collateral. When lending to a small business owner who is an owner/ manager, what methods might the bank use to perfect its interest in the collateral of the business?

  What annual interest rate must they earn to reach their goal

Your parents will retire in 13 years. They currently have $300,000, and they think they will need $1 million at retirement. What annual interest rate must they earn to reach their goal, assuming they don't save any additional funds?

  Start investing for retirement and then made yearly payments

Tom and Tricia are 22, newly married, and ready to embark on the journey of life.   They both plan to retire 45 years from today. Because their budget seems tight right now, they had been thinking that they would wait at least 10 years and then start..

  Maintenance costs for a regenerative thermal oxidizer

Maintenance costs for a regenerative thermal oxidizer have haven increasingly uniformly for 5 years. The cost in year 1 was $8,000 and it increased by $900 per year through year 5. Compute the present worth of the costs using an interest rate of 10% ..

  Buying taxis with diesel engines instead of gasoline engines

A suburban taxi company is considering buying taxis with diesel engines instead of gasoline engines. The cars average 50,000 km a year. Use an annual cash flow analysis to determine the more economical choice if interest is 6%

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