Data for all Milton Industries problems are the same. Milton Industries wants to purchase new equipment that has a quoted price of $1,000,000. Milton estimates an additional cost of $75,000 will be needed today to have the equipment modified, shipped, and installed. The purchase of this additional equipment will require Milton to invest an estimated $85,000 in net working capital upfront, and this investment should be recovered when Milton sells the equipment. If purchased, the equipment will be employed for a total of six years, and then sold for an estimated $780,000. The equipment will be depreciated straight-line on a six-year schedule. During each of the years that the equipment is in service, it is expected to boost Milton’s sales revenue by $398,000 though annual operating costs (other than depreciation) are also expected to be higher, to the extent of $94,000. Milton faces a marginal tax rate of 35%, and its cost of capital is 10.5%. The NPV of this project will be zero if Milton’s cost of capital were: 17.14% 15.87% 10.55% 13.15% 14.84%
Data for all Milton Industries problems are the same. Milton Industries wants to purchase new equipment that has a quoted price of $1,000,000. Milton estimates an additional cost of $75,000 will be needed today to have the equipment modified, shipped, and installed. The purchase of this additional equipment will require Milton to invest an estimated $85,000 in net working capital upfront, and this investment should be recovered when Milton sells the equipment. If purchased, the equipment will be employed for a total of six years, and then sold for an estimated $780,000. The equipment will be depreciated straight-line on a six-year schedule. During each of the years that the equipment is in service, it is expected to boost Milton’s sales revenue by $398,000 though annual operating costs (other than depreciation) are also expected to be higher, to the extent of $94,000. Milton faces a marginal tax rate of 35%, and its cost of capital is 10.5%. The NPV of this project will be zero if Milton’s cost of capital were: 17.14% 15.87% 10.55% 13.15% 14.84%
Intermediate Financial Management (MindTap Course List)
13th Edition
ISBN:9781337395083
Author:Eugene F. Brigham, Phillip R. Daves
Publisher:Eugene F. Brigham, Phillip R. Daves
Chapter13: Capital Budgeting: Estimating Cash Flows And Analyzing Risk
Section: Chapter Questions
Problem 1P: Talbot Industries is considering launching a new product. The new manufacturing equipment will cost...
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Data for all Milton Industries problems are the same. Milton Industries wants to purchase new equipment that has a quoted price of $1,000,000. Milton estimates an additional cost of $75,000 will be needed today to have the equipment modified, shipped, and installed. The purchase of this additional equipment will require Milton to invest an estimated $85,000 in net working capital upfront, and this investment should be recovered when Milton sells the equipment. If purchased, the equipment will be employed for a total of six years, and then sold for an estimated $780,000. The equipment will be depreciated straight-line on a six-year schedule. During each of the years that the equipment is in service, it is expected to boost Milton’s sales revenue by $398,000 though annual operating costs (other than depreciation) are also expected to be higher, to the extent of $94,000. Milton faces a marginal tax rate of 35%, and its cost of capital is 10.5%. The NPV of this project will be zero if Milton’s cost of capital were:
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17.14%
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15.87%
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10.55%
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13.15%
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14.84%
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