posted by .

Q1:You wish to start a sproject.Your initial investment is$100000. You generate 0cashflows for first2years but$16000in year3&increase by15%every year till year7,after which time they decline by2%until year9.You expect0growth in cash flows beyond yaer9, but expect to generate constant cashflows into the foreseeable future. If capital cost=8% per year.

Q2:You want to buy new machine&replace the existing machine, which you have used for the past3years.New machine costs$75000&will be useful for5years after which can be sold to fetch salvage value of$9000.New machine will be depreciated straight-line 0over5years.Old machine was bought for$70000&also depreciates straight-line to0over5years.Old machine can be sold today for$30000but worth$6500in5years.
New machine is efficient. Annual savings in operating costs are $12000.Your net working capital requirement will decline annually by $4000.Tax at rate is35%&has capital cost rate of12%

Please show me detailed step by step solutions. Thanks.

(from Fundamentals of Corporate Finance - McGraw-Hill)

Respond to this Question

First Name
School Subject
Your Answer

Similar Questions

  1. Finance

    Question 1: You wish to start a project. Your initial investment is $100000. You generate 0 cash flows for the first 2 years but generate $16000 in year 3 and increase by 15% every year till year 7, after which time they decline by …
  2. finance

    I'm having a terrible time understanding how to estimate cash flow. My book only provides one example, and it's long and drawn out. The question I'm working on is this: A project that is expected to last six years will generate a profit …
  3. Finance

    Wheel Industries is considering a three year expansion project. The project requires an initial investment of $1.5 million. The project will use straight line depreciation method. The project has no salvage value. It is estimated that …
  4. Business finance

    Question No 1: Sumi Inc. has policy of paying a Rs. 9 per share dividend every year. If this policy is to continue indefinitely, what will be the value of a share of stock at a 12% required rate of return?
  5. Finance

    A company makes an investment of $150,000 with a useful life of 10 years and expects to use this investment to generate $300,000 in sales with $280,000 in incremental operating costs. If the company operates in an environment with …
  6. Finance

    A U.S.-based firm is planning to make an investment in Europe. The firm estimates that the project will generate cash flows of 200,000 euros after one year. If the one-year forward exchange rate is $1.40/euro and the dollar cost of …
  7. Finance

    A company is planning to open 100 new outlets that are expected to generate, in total, $15 million in free cash flows per year, with a growth rate of 3% in perpetuity. If the company’s WACC is 10%, what is the NPV of this expansion?
  8. finance

    investment requires an initial oulay of 105,000 and will generate cash inflow of 20000 for 11 years. What is the NPV using discount rate of 8%
  9. Math

    Fijisawa Inc. is considering a major expansion of its product line and has estimated the following cash flows associated with such an expansion. The initial outlay would be $1,980,000, and the project would generate incremental free …
  10. Finance

    What is the value of a building that is expected to generate fixed annual cash flows of 124,250 dollars every year for a certain amount of time if the first annual cash flow is expected in 3 years from today and the last annual cash …

More Similar Questions