With the growing popularity of casual surf print clothing, two recent MBA graduates decided to broaden this casual surf concept to encompass a “surf lifestyle for the home.” With limited capital, they decided to focus on surf print table and floor lamps to accent people’s homes. They projected unit sales of these lamps to be 12,000 in the first year, with growth of 8 percent each year for the next five years. Production of these lamps will require $85,000 in net working capital to start. Total fixed costs are $185,000 per year, variable production costs are $21 per unit, and the units are priced at $67 each. The equipment needed to begin production will cost $675,000. The equipment will be depreciated using the straight-line method over a 5-year life and is not expected to have a salvage value. The tax rate is 25 percent and the required rate of return is 19 percent. What is the NPV of this project? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.

With the growing popularity of casual surf print clothing, two recent MBA graduates decided to broaden this casual surf concept to encompass a “surf lifestyle for the home.” With limited capital, they decided to focus on surf print table and floor lamps to accent people’s homes. They projected unit sales of these lamps to be 12,000 in the first year, with growth of 8 percent each year for the next five years. Production of these lamps will require $85,000 in net working capital to start. Total fixed costs are $185,000 per year, variable production costs are $21 per unit, and the units are priced at $67 each. The equipment needed to begin production will cost $675,000. The equipment will be depreciated using the straight-line method over a 5-year life and is not expected to have a salvage value. The tax rate is 25 percent and the required rate of return is 19 percent. What is the NPV of this project? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.

Principles of Accounting Volume 2

19th Edition

ISBN:9781947172609

Author:OpenStax

Publisher:OpenStax

Chapter11: Capital Budgeting Decisions

Section: Chapter Questions

Problem 1EB: Margos Memories, a company that specializes in photography and creating family and group photo...

See similar textbooks

Similar questions

With the growing popularity of casual surf print clothing, two recent MBA graduates decided to broaden this casual surf concept to encompass a "surf lifestyle for the home." With limited capital, they decided to focus on surf print table and floor lamps to accent people's homes. They projected unit sales of these lamps to be 10,900 in the first year, with growth of 8 percent each year for the next five years. Production of these lamps will require $63,000 in net working capital to start. Total fixed costs are $152,000 per year, variable production costs are $20 per unit, and the units are priced at $63 each. The equipment needed to begin production will cost $620,000. The equipment will be depreciated using the straight-line method over a 5-year life and is not expected to have a salvage value. The tax rate is 24 percent and the required rate of return is 16 percent. What is the NPV of this project? (Do not round intermediate calculations and round your answer to 2 decimal places,…
With the growing popularity of casual surf print clothing, two recent MBA graduates decided to broaden this casual surf concept to encompass a “surf lifestyle for the home.” With limited capital, they decided to focus on surf print table and floor lamps to accent people’s homes. They projected unit sales of these lamps to be 7,900 in the first year, with growth of 7 percent each year for the next five years. Production of these lamps will require $44,000 in net working capital to start. The net working capital will be recovered at the end of the project. Total fixed costs are $104,000 per year, variable production costs are $24 per unit, and the units are priced at $52 each. The equipment needed to begin production will cost $184,000. The equipment will be depreciated using the straight-line method over a five-year life and is not expected to have a salvage value. The effective tax rate is 35 percent and the required rate of return is 25 percent. What is the NPV of this project?
With the growing popularity of casual surf print clothing, two recent MBA graduates decided to broaden this casual surf concept to encompass a “surf lifestyle for the home.” With limited capital, they decided to focus on surf print table and floor lamps to accent people’s homes. They projected unit sales of these lamps to be 10,200 in the first year, with growth of 7 percent each year for the next five years. Production of these lamps will require $49,000 in net working capital to start. Total fixed costs are $131,000 per year, variable production costs are $18 per unit, and the units are priced at $60 each. The equipment needed to begin production will cost $585,000. The equipment will be depreciated using the straight-line method over a 5-year life and is not expected to have a salvage value. The tax rate is 22 percent and the required rate of return is 17 percent. What is the NPV of this project?
With the growing popularity of casual surf print clothing, two recent MBA graduates decided to broaden this casual surf concept to encompass a “surf lifestyle for the home.” With limited capital, they decided to focus on surf print table and floor lamps to accent people’s homes. They projected unit sales of these lamps to be 8,100 in the first year, with growth of 5 percent each year for the next five years. Production of these lamps will require $46,000 in net working capital to start. The net working capital will be recovered at the end of the project. Total fixed costs are $106,000 per year, variable production costs are $12 per unit, and the units are priced at $40 each. The equipment needed to begin production will cost $186,000. The equipment will be depreciated using the straight-line method over a five-year life and is not expected to have a salvage value. The effective tax rate is 21 percent and the required rate of return is 20 percent. What is the NPV of this project? (Do…
With the growing popularity of casual surf print clothing, two recent MBA graduates decided to broaden this casual surf concept to encompass a “surf lifestyle for the home.” With limited capital, they decided to focus on surf print table and floor lamps to accent people's homes. They projected unit sales of these lamps to be 7,200 in the first year, with growth of 6 percent each year for the next five years. Production of these lamps will require $37,000 in net working capital to start. The net working capital will be recovered at the end of the project. Total fixed costs are $97,000 per year, variable production costs are $15 per unit, and the units are priced at $45 each. The equipment needed to begin production will cost $177,000. The equipment will be depreciated using the straight-line method over a five-year life and is not expected to have a salvage value. The effective tax rate is 22 percent and the required rate of return is 30 percent. What is the NPV of this project? (Do not…
With the growing popularity of casual surf print clothing, two recent MBA graduates decided to broaden this casual surf concept to encompass a “surf lifestyle for the home.” With limited capital, they decided to focus on surf print table and floor lamps to accent people’s homes. They projected unit sales of these lamps to be 11,200 in the first year, with growth of 8 percent each year for the next five years. Production of these lamps will require £69,000 in net working capital to start. Total fixed costs are £161,000 per year, variable production costs are £18 per unit, and the units are priced at £63 each. The equipment needed to begin production will cost £635,000. The equipment will be depreciated using the straight-line method over a 5-year life and is not expected to have a salvage value. The tax rate is 22% and the required rate of return is 19%. Using the information provided, evaluate the investment option.
Throughout the semester we have talked about the challenges facing office building owners in a post pandemic work environment where office workers are allowed to work remotely. You own a 500,00 square foot office building in a viable urban market, but you anticipate a stabilized vacancy rate of 40% for the next 10 years. If your investors require a 12% cash on cash return, how much could you spend per square foot to convert the vacant office space to micro-apartments if your project stabilized cash available to investors will be $12 million? Question 18 options: $200 per square foot. $800 per square foot. $250 per square foot. $500 per square foot.
A company that manufactures high-strength epoxys is considering investing $100,000 in two new adhesives identified as X and Z. The investment in X is $20,000 and is expected to yield a rate of return of 40% per year. Your supervisor asked you to determine what rate of return would be required on the remaining $80,000 in order for the total return to be at least 25%. You responded that the return would have to be at least Multiple Choice O O 10.4% 16.8% 21.3% 24.1%
Flexcell Bhd is considering investing in the production of a new technology, a handheld communication device, the target market is young undergraduates. The estimated investment cost for this project is RM100 million with 3 year project life. Demand for the product, and therefore the project risk, is a function of the demand for Internet connections. The CFO working with marketing, currently estimates a 25% chance that such demand will be high, a 50% probability that demand will be medium, and a 25% probability that demand will be low. Associated after tax cash flows under each of these three market scenarios are estimated as follows: RM70 million, RMS0 million, and RM5 million. For projects of this nature, a 15% discount rate (equal to the firm's weighted average cost of capital) is assumed. Because starting the project immediately on day 1 results in negative NPV of RM0.109 million, management of the company has decided to avoid risk by delaying the implementation of the project for…
JigSaw Puzzle Company is a chain of 10 retail stores that sell puzzles. In order to more efficiently process and record sales, they are considering the purchase of a point-of-sale system. You have been asked to perform the cost-benefit analysis for this new system. The system will provide annual salary savings of $200,000 for each year of the system's 7-year life. The firm's cost of capital is 12%. The system development cost is projected to be $350,000. Annual operating costs (other than salaries) will rise by $60,000 if we implement the new system. The following factors are for 12%, and 7 years: Present value of a lump sum 0.452 Present value of an annuity 4.564 REQUIRED: Using net present value analysis, evaluate the economic feasibility of the proposed system. Your analysis in #1 above deals with only one aspect of feasibility. Briefly explain other aspects of feasibility that should be considered before a final…
A company that manufactures high-strength epoxys is considering investing $100,000 in two new adhesives identified as X and Z. The investment in X is $20,000 and is expected to yield a rate of return of 40% per year. Your supervisor asked you to determine what rate of return would be required on the remaining $80,000 in order for the total return to be at least 25%. You responded that the return would have to be at least: (a) 10.4% (b) 16.8% (c) 21.3% (d) 24.1%
An engineer launches a project in the country's top techohub. This involves rental of a computer unit for online class students. He felt that because of the density of students in the area, 90% of his 30-units will be occupied per sem (5 months each) per year. He desires a rate of return of 20%. Other pertinent data are the following: Office investment Computer investment per unit |Cost of computers after 10 yrs Office rental per month |Computer rental per unit per month |Annual maintenance budget per unit Business tax Insurance P 1,000,000 P 35,000 P 5,000 P 9,000 P 2,000 P 5,000 | 1% of Total Investment 0.5% of Total Investment Assess the project using (1) ROR, (2) Present Worth Method, and (3) Future Worth Method. (4) Estimate the payback period of this project.