Litchfield design is evaluating three-year project

Assignment Help Financial Management
Reference no: EM131891535

1. Litchfield Design is evaluating a 3-year project that would involve buying a new piece of equipment for 280,000 dollars today. The equipment would be depreciated straight-line to 40,000 dollars over 2 years. In 3 years, the equipment would be sold for an after-tax cash flow of 52,000 dollars. In each of the 3 years of the project, relevant revenues are expected to be 171,000 dollars and relevant costs are expected to be 93,000 dollars. The tax rate is 50 percent and the cost of capital for the project is 5.61 percent. What is the NPV of the project?

2. What is the NPV of project A? The project would require an initial investment in equipment of 30,000 dollars and would last for either 3 years or 4 years (the date when the project ends will not be known until it happens and that will be when the equipment stops working in either 3 years from today or 4 years from today). Annual operating cash flows of 11,700 dollars per year are expected each year until the project ends in either 3 years or 4 years. In 1 year, the project is expected to have an after-tax terminal value of 26,920 dollars. The cost of capital for this project is 11.29 percent.

Reference no: EM131891535

Questions Cloud

Describes the securities in the portfolio : Describes the securities in the portfolio, including a description of the historical information for each firm.
What is the net present value of the stadium project : What is the net present value of the stadium project, which is a 3-year project where Fairfax Pizza would sell pizza in the baseball stadium?
Describe present value annuity and future value factors : Describe present value annuity and future value factors.
Indifferent between accepting the project and rejecting : At what discount rate would you be indifferent between accepting the project and rejecting it?
Litchfield design is evaluating three-year project : Litchfield Design is evaluating a 3-year project that would involve buying a new piece of equipment for 280,000 dollars today.
High efficiency purification system : Oxygen Optimization is considering buying a new, high efficiency purification system.
Describe future value annuity and future value of annuity : Describe future value annuity and future value of an annuity.
What would the after-tax cash flow be from equipment sale : What would the after-tax cash flow be from the equipment sale if the equipment is sold in 7 years for 109,000 dollars and the tax rate is 25 percent?
Underlying immunization relating duration to the discussion : Describe the concept underlying immunization relating duration to the discussion?

Reviews

Write a Review

Financial Management Questions & Answers

  Compute the cost of each capital component

Calculate the cost of each capital component, after-tax cost of debt, cost of preferred, and cost of equity with the CAPM method.

  Dupont analysis-what is cafe creations total assets

DuPont Analysis Last year Café Creations, Inc. had an ROA of 17%, a profit margin of 11.2%, and sales of $4.8 million. What is Café Creations's total assets? Your firm has an unusual investment opportunity that is expected to provide $45,000 two year..

  Analyzing a project with an initial cost

Antonio's is analyzing a project with an initial cost of $38,000 and cash inflows of $25,000 a year for 2 years. This project is an extension of the firm's current operations and thus is equally as risky as the current firm. The firm uses only debt a..

  Evaluate the advice kate received from her coworkers

Evaluate the advice Kate received from her coworkers

  Prepare flexible budget for january production costs

Normal Volume per month is 40,000 direct labor hours. Beal’s January 2004 budget was based on normal volume. Prepare a flexible budget for January 2004 production costs, based on actual production of 7,800 units.

  Construct a contingency graph for a long pound straddle

Construct a contingency graph for a long pound straddle. Construct a contingency graph for a short pound straddle.

  What is the capital gains yield

What is the CAPITAL GAINS YIELD of a $1,000 par value bond that matures in 19 years and pays interest of $41 every six months if yield to maturity is 5.5 pecent

  What is the firm weighted average cost of capital

J. Ross and Sons Inc. has a target capital structure that calls for 40 percent debt, 10 percent preferred stock, and 50 percent common equity. The firm's current after tax cost of debt is 6 percent, and it can sell as much debt as it wishes at this r..

  What is your dollar rate of return

Assume that you have invested $100,000 in Japanese equities. What is your dollar rate of return?

  Explain how many dollars will cash management system free up

If the company has $5 million per day in collections and $3 million per day in disbursements, how many dollars will the cash management system free up? Justify your answers.

  In the mid-eighties the toro company launched a promotion

in the mid-eighties the toro company launched a promotion in which snow blower purchasers could refund a portion of

  Which machine should be purchased and why

You require a new machine for 20 years. Machine A lasts 5 years and Machine B lasts 4 years. Machine A costs $13,000 and Machine B costs $11,000. The salvage value of Machine A is $3,000 and the salvage value of Machine B is $4,000. Annual O&M costs ..

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