University in maryland works on a new lms system

Assignment Help Finance Basics
Reference no: EM13686146

A well known university in Maryland works on a new LMS system, The management anticipates that new system will have the first year revenues of $400,000 with subsequent annual growth of 5%. Operating costs are 30% of revenues.

The project requires investment in new equipment, which will have a five year anticipated life and will be depreciated using MACRS depreciation method toward a zero book value (MACRS depreciation rates are given below). However, the company will be able to sell the equipment on the after-market at the end of year 5 for 20% of its original cost. The company requires a 10% rate of return from its investment and faces a 38% tax rate (overall the company is profitable). In addition to capital investment, the project requires an outlay of net working capital equal to 10% of revenues in the coming year. I.e., at time 0 (beginning of year 1) net working capital requirement is $25,000 and will grow in subsequent years. All NWC will be recovered after the project's end.

a) Calculate the NPV and IRR for the project. Should the company undertake the project? (see chapter 2 for details)
b) The manager raised some concerns about costs, first year revenues and revenue growth projections. Considering one factor at a time, at what level of operating costs, initial revenues, and revenues growth the project will break-even (NPV=0)? (see chapter 3 for details)
c) Looking at percentage difference between the predicted level and critical (break-even) level of each of the three factors, which of them is the most critical? (see chapter 3 for details)

Reference no: EM13686146

Outstanding bonds

Rockne, Inc., has outstanding bonds that will mature in six years and pay an 8 percent coupon semiannually. If you paid $1,001.73 today and your required rate of return wa

What is the market value of the bond

Knight, Inc., has issued a three-year bond that pays a coupon of 5.50 percent. Coupon payments are made semiannually. Given the market rate of interest of 4.10 percent, wh

Business ethics by maryann haggerty

Explain your stance on this issue. Choose one other issue that caught your interest in the article. Explain how this issue is important in increasing ethical behavior in the

What must municipals offer for the investor

An investor is in a 30% combined federal plus state tax bracket . if corporate bonds offer 9% yields, what must municipals offer for the investor to prefer them to corpora

Stocks are generally regarded as being risky investments

Stocks are generally regarded as being risky investments. According to the CAPM, is it possible for a stock to have an expected return that is less than the risk-free rate? Ex

What is tamparuli inc. debt ratio

Tamparuli Inc. has a total equity of RM560,000; sales of RM2,250,000; total assets of RM995,000; and current liabilities of RM310,000. What is Tamparuli Inc.'s debt ratio?

What is the current bond price

Zevon, inc. has 9 percent coupon bonds on the market that have 8 years left to maturity. the bonds make annual payments. if the YTM on these bonds is 7 percent , what is t

What is the market price of the bond

A tax-exempt bond was recently issued an annual 10% coupon rate and matures 15 years from today. The par value of the bond is $1000. If the required market rates at 10%,


Write a Review

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