Inflation will impact annual revenue-annual operating cost

Assignment Help Financial Management
Reference no: EM131554934

A manufacturing company has just received an order with the following financial data. All dollar values are given in constant dollars, and inflation will impact the annual revenue, annual operating cost, and the salvage value. The two-year project requires immediately purchasing equipment for $66,000. The equipment falls into the MACRS 5-year class. The machine will be sold for $17,000 at the end of two years. The project will bring in additional annual revenue of $85,000, but it is expected to incur an additional annual operating cost of $29,000. The firm expects a general inflation rate of 7% per year during the project period. The firm's tax rate is 31%, and its market interest rate is 16%. What is the net present worth of this project?

Reference no: EM131554934

Questions Cloud

What does the variable x represent : On a distant planet, Ralph ran into a creature with multiple arms and multiple legs. Each arm has 6 fingers and each leg has 9 toes.
Find the critical value of z : Use Excel to find the critical value of z for each hypothesis test. (Negative values should be indicated by a minus sign. Round your answers to 3 decimal places
Given added political and economic risks : Given added political and economic risks that appear to exist overseas, are multinational firms more or less risky than purely domestic firms in same industry?
Confidence interval - difference between two population mean : The supervisor of an orange juice bottling company is considering the purchase of a new machine to bottle 16 fluid ounces (473 mL) bottles of 100% pure orange.
Inflation will impact annual revenue-annual operating cost : All dollar values are given in constant dollars, and inflation will impact the annual revenue, annual operating cost, and the salvage value.
A self-pay patient with no insurance is billed : When you provide the results of your analysis about the reduction in revenue problem to the CEO, what might you report?
What is the expected value of your coupon : There is a 50% chance that your coupon will be worth $10, a 40% chance that it will be worth $25, an 8% chance it will be worth $50 and a 2% chance.
Computer-based order entry system : Your firm is contemplating the purchase of new $617,942 computer-based order entry system. What is the NPV of this project if the discount rate is 10.4 percent?
Identify the risk associated with the endeavor-financial : identify the risk associated with the endeavor-financial or nonfinancial. Once the risks have been identified, management has a responsibility.

Reviews

Write a Review

Financial Management Questions & Answers

  After tax cash flows for the first year for each bond

Suppose your company needs to raise $44 million and you want to issue 20-year bonds for this purpose. Assume the required return on your bond issue will be 8 percent, and you’re evaluating two issue alternatives:

  Market values and book values

Klingon Widgets, Inc., purchased new cloaking machinery three years ago for $6 million. The machinery can be sold to the Romulans today for $5.6 million. Klingon’s current balance sheet shows net fixed assets of $4.8 million, current liabilities of $..

  Considering two potential investments-risk-averse investor

You are considering two potential investments. One is an established company with a history of consistent earnings growth, while the other is a new IPO with a short track record. You think that the stock of both companies will be worth $100 in three ..

  Investment banking firm-what is the present value

You’ve just joined the investment banking firm of Dewey, Cheatum, and Howe. They’ve offered you two different salary arrangements. You can have $8,300 per month for the next three years, or you can have $7,000 per month for the next three years, alon..

  What is the expected percentage growth rate in copper prices

The market price of risk for copper is 0.5, the volatility of copper prices is 20% per annum, the spot price is 80 cents per pound, and the 6-month futures price is 75 cents per pound. What is the expected percentage growth rate in copper prices o..

  Firms beta increased

If a firm's beta increased, everything else being the same, its required rate of return would

  Usually experiences seasonality in its cash balances

Meals for the Homeless usually experiences seasonality in its cash balances. In December, contributions from donors increase its cash balances, and then these balances are used throughout the following year. By the fall, Meals for the Homeless has a ..

  Dividends-what is the current share price

Yang Corp. is growing quickly. Dividends are expected to grow at a rate of 28 percent for the next three years, with the growth rate falling off to a constant 7.4 percent thereafter. Required: If the required return is 16 percent and the company just..

  What is the bonds current market price

BOND VALUATION Madsen Motors’s bonds have 23 years remaining to maturity. Interest is paid annually; they have a $1,000 par value; the coupon interest rate is 9%; and the yield to maturity is 11%. What is the bond’s current market price?

  What is after tax cash flow from the sale of this asset

If the relevant tax rate is 35 percent, what is the after tax cash flow from the sale of this asset?

  What is the future value at a discount rate

Cannonier, Inc., has identified an investment project with the following cash flows. Year Cash Flow 1 $ 1,060 2 1,290 3 1,510 4 2,250 If the discount rate is 6 percent, what is the future value of these cash flows in Year 4? (Do not round intermediat..

  Preferred stock with a perpetual annual dividend

App Inc plans to issue preferred stock with a perpetual annual dividend of 10% of par value and a par value of $25.

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