Reference no: EM131337286
A new project is expected to have an 8-year economic life. The project will have an initial cost of $100,000. Installation and shipping charges for the equipment are estimated at $10,000. The equipment will be depreciated as a 7-year asset under MACRS rules. A working capital investment of $15,000 is required to undertake the project.
The revenues from the project in year 1 are expected to be $60,000. These are expected to increase at a compound annual rate of 6 percent. Operating costs exclusive of depreciation are $15,000. These costs are expected to increase at an 8 percent compound annual rate. The firm's marginal tax rate is 40 percent. The expected salvage value of the equipment at the end of year 8 is $20,000.
a. Compute the project's net investment.
b. Compute the annual net cash flows for the project.
c. If the firm's cost of capital is 19 percent, should the project be undertaken?
d. The managers of the firm have also decided to evaluate this project using the certainty equivalent approach. They have established the following certainty equivalent factors for the cash flows forecasted in each year:
Year
|
αi
|
0
|
1.00
|
1
|
0.95
|
2
|
0.90
|
3
|
0.80
|
4
|
0.60
|
5
|
0.50
|
6
|
0.45
|
7
|
0.40
|
8
|
0.35
|
The risk-free rate is 8 percent. Compute the certainty equivalent NPV for this project.
Determine the probability of accepting
: ISE 421 Operations Research II Assignment. Let T = 20 be the current value of the temperature. Let the objective function value of the current solution be 30. Starting from the current solution, determine the probability of accepting each of the f..
|
Derive the values of c from the similarity solution
: For laminar free convection flow on a vertical plate, the recommended values of C and n for use in the correlation of Equation 9.24 are 0.59 and 1/4, respectively. Derive the values of C from the similarity solution, Equation 9.21, for Pr = 0.01, ..
|
Organisational behaviour and human resource management
: Organisational Behaviour and Human Resource Management - Critically evaluate two Human Resource Management (HRM) functions of the organisation selected. Consider highlighting the differences between the traditional practice of Personnel Management ..
|
Review organizational behavior environment of that company
: Research companies from that list to ensure sufficient information is available to review the Organizational Behavior environment of that company.
|
Compute the projects net investment
: Compute the project's net investment.- Compute the annual net cash flows for the project.- If the firm's cost of capital is 19 percent, should the project be undertaken?
|
Illustrates social responsibility in its environment
: Create a 2 to 3-page research paper that discusses how one company (of your choice) illustrates social responsibility in its environment. Discuss what leadership does to promote social responsibility and how this ties to ethics and the organizati..
|
What is the maximum velocity in the boundary layer
: What is the maximum velocity in the boundary layer at this location and at what position in the boundary layer does the maximum occur?
|
Are you seeing a common theme
: Review the evidence you are collecting for your proposed study. Which theories have others cited? Are you seeing a common theme? Next construct a conceptual map (see p. 133 in your textbook). Be sure you have defined the concepts and included rela..
|
Analyze how can you use goal-setting to increase motivation
: Explain why you agree or disagree with your results. Develop strategies to advance your career using your strengths. How can you use goal-setting to increase motivation and improve job performance?
|