Calculation of net present value and decision making

Assignment Help Finance Basics
Reference no: EM1312832

Calculation of net present value and decision making of Maple Media is considering a proposal to enter a new line of business. In reviewing the proposal, the company's CFO is considering the following facts:

1.The new business will require the company to purchase additional fixed assets that will cost $600,000 at t = 0. For tax and accounting purposes, these costs will be depreciated on a straight-line basis over three years.

2. At the end of three years, the company will get out of the business and will sell the fixed assets at a salvage value of $100,000.

3. The project will require a $50,000 increase in net working capital at t = 0, which will be recovered at the end of the life of the new business.

4. The company's tax rate is 35 percent.

5. The new business is expected to generate $2 million in sales each year. The operating costs, excluding depreciation, are expected to be $1.4 million per year.

6. The project's appropriate discount rate is 12 percent.

What is the project's net present value? Should the project be accepted or rejected?

Reference no: EM1312832

Questions Cloud

Fermentation in absence of oxygen and anaerobic respiration : Explain how cells meet their energy requirements through the process of fermentation in absence of oxygen along with the examples.
Demand and supply analysis price of dairy cow : What takes place to the equilibrium price and quantity of ice cream in response to each of the following? Describe your answers.
Difference in means between two populations : Any analysis required to check the required conditions (note that if you find that you cannot meet the required conditions for the test you expected to do, you must use the appropriate non-parametric test)
What was gross profit for randy''s spa : What was Gross Profit for Randy's Spa Supplies in February and What was the Gross Profit rate for Randy's Spa Supplies in February
Calculation of net present value and decision making : Calculation of net present value and decision making of Maple Media is considering a proposal to enter a new line of business
Purpose inventory return portion of the entry : Purpose inventory return portion of the entry for this sales return on Randy's books and Record this return of purchases on Janet's books.
Find the radius of the tyre : The magnitude FN of the normal force that each side of the tread channel exerts on the stone is 1.8 N. Suppose that only static friction supplies the centripetal force, & find the radius r of the tyre.
Questions on aggregate supply and long-run equilibrium : What are the advantages of Fed increasing interest rates if the GDP gap is positive?
Cell division and sexual reproduction : Explain how cell division and the sexual reproduction help in genetic variability of organism. How do both the meiosis and sexual reproduction (fertilization) generate offspring which differ genetically from parents?

Reviews

Write a Review

 

Finance Basics Questions & Answers

  Computation of equity capital contribution

Computation of equity capital contribution and Before Tax Cash Flow and After Tax Cash Flow and What is the Before-tax Cash Flow to the equity investor

  Determining the proper cash flow amount

Determine the proper cash flow amount to use as initial investment in fixed assets when estimating this project? Describe why?

  Computation of internal rate of return of the bond

Computation of internal rate of return of the bond and what was your internal rate of return

  Computation of current price of share

Computation of current price of share and find What is the current price and What will be the price in three years

  Various techniques of inventory management

An investor is thinking of investing in a recurring deposit scheme that offers an interest rate of 12% per annum

  Computation of hedging position with options

Computation of hedging position with options and given that you hedge your position with options, create a probability distribution for U.S. dollars to be received in 90 days

  Computation of weighted cost of capital that is appropriate

Computation of weighted cost of capital and Compute the weighted cost of capital that is appropriate to use In evaluating this expansion program

  Computing investment to completely fund annuity in 50 years

How much would you have to invest yearly to completely fund annuity in 50 years, again suppose a 6% monthly compounding rate?

  Computing the firms share price with the help of price

Computing the firms share price with the help of price earnings ratio and Perez Electronics Corp. has reported that its net income for 2006 is $1,276,351

  Computation of profit margin

Computation of profit margin and total asset turnover and return on total assets for two consecutive years and Comment on such results

  Computation of beta of the firm and market portfolio

Computation of beta of the firm and market portfolio and how does this compare with the stock's actual expected return

  Computation of first three years schedule of loan

Computation of first three years schedule of loan and the requires that Dagnay pay off the loan over a twenty-year period

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