Reference no: EM131315759
You have been hired as a consultant for Pristine Urban-Tech Zither, Inc. (PUTZ), manufacturers of fine zithers. The market for zithers is growing quickly. The company bought some land three years ago for $1.35 million in anticipation of using it as a toxic waste dump site but has recently hired another company to handle all toxic materials. Based on a recent appraisal, the company believes it could sell the land for $1,450,000 on an aftertax basis. In four years, the land could be sold for $1,550,000 after taxes. The company also hired a marketing firm to analyze the zither market, at a cost of $120,000. An excerpt of the marketing report is as follows:
The zither industry will have a rapid expansion in the next four years. With the brand name recognition that PUTZ brings to bear, we feel that the company will be able to sell 3,300, 4,200, 4,800, and 3,700 units each year for the next four years, respectively. Again, capitalizing on the name recognition of PUTZ, we feel that a premium price of $600 can be charged for each zither. Because zithers appear to be a fad, we feel at the end of the four-year period, sales should be discontinued.
PUTZ feels that fixed costs for the project will be $400,000 per year, and variable costs are 15 percent of sales. The equipment necessary for production will cost $3.00 million and will be depreciated according to a three-year MACRS schedule. At the end of the project, the equipment can be scrapped for $375,000. Net working capital of $120,000 will be required immediately. PUTZ has a 38 percent tax rate, and the required return on the project is 13 percent. Assume the company has other profitable projects. MACRS schedule
Property Class
Year Three-Year Five-Year Seven Year
1 33.33% 20.00% 14.29%
2 44.45 32.00 24.49
3 14.81 19.20 17.49
4 7.41 11.52 12.49
5 11.52 8.93
6 5.76 8.92
7 8.93
8 4.46
What is the NPV of the project? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.)
NPV=
|
Find the maximum arbitrage profit
: Find the maximum arbitrage profit (in dollars) to someone that has access to $10 million at an interest rate of 2%.
|
|
What are the earnings per share
: Income Statement Bullseye, Inc.'s 2008 income statement lists the following income and expenses: EBIT = $700,000, Interest expense = $50,000, and Taxes = $217,000. Bullseye's has no preferred stock outstanding and 300,000 shares of common stock outst..
|
|
What is present value of the net cash flows
: Phillips Industries runs a small manufacturing operation. For this fiscal year, it expects real net cash flows of $204,000. The company is an ongoing operation, but it expects competitive pressures to erode its real net cash flows at 4 percent per ye..
|
|
Unbiased expectations theory holds
: Suppose we observe the following rates; The one year rate is 2.95%. The two-year rate is 3.36%. If the unbiased expectations theory holds, what is the one-year interest rate (in % format) expected in one year from now?
|
|
Hired as consultant for pristine urban-tech zither
: You have been hired as a consultant for Pristine Urban-Tech Zither, Inc. (PUTZ), manufacturers of fine zithers. The market for zithers is growing quickly. The company bought some land three years ago for $1.35 million in anticipation of using it as a..
|
|
Standard deviation of portfolios return using the weights
: The expected return of security A is 20% and that of security B is 10%. Also, the standard deviation of security A is 4% and that the standard deviation of security B is 2%. The correlation coefficient between A and B is 0.0. What is the expected ret..
|
|
What is price of zero coupon bond with five year to maturity
: Acme Inc.'s stock has a 20% chance of producing a 8% return, a 60% chance of producing a 14% return, and a 20% chance of producing a 10% return. What is the standard deviation (not the variance!) of the returns to Acme’s stock? What is the price of a..
|
|
Considering purchase of new manufacturing facility
: Sanders Enterprises, Inc., has been considering the purchase of a new manufacturing facility for $278,000. The facility is to be fully depreciated on a straight-line basis over seven years. It is expected to have no resale value after the seven years..
|
|
What was charge for depreciation and amortization
: Talbot Enterprises recently reported an EBITDA of $6.0 million and net income of $1.5 million. It had $2.4 million of interest expense, and its corporate tax rate was 40%. What was its charge for depreciation and amortization?
|