Result from the investment in toaster ovens

Assignment Help Financial Management
Reference no: EM131977537

Jane's Sub Shop is considering investing in toaster ovens for each of its 120 stores located in the southwestern United States. The high-capacity conveyor toaster ovens, manufactured by Lincoln, will require an initial investment of $15,000 per store plus $500 in installation costs, for a total investment of $1,860,000. The new capital (including the costs for installation) will be depreciated over five years using straight-line depreciation toward a zero salvage value. Jane will also incur additional maintenance expenses totaling $120,000 per year to maintain the ovens. At present, firm revenues for the 120 stores total $9 million, and the company estimates that adding the toaster feature will increase revenues by 10%. Jane's weighted average cost of capital is 9%.

a. If Jane faces a 30% tax rate, what expected project FCFs for each of the next five years will result from the investment in toaster ovens?

b. What is the project's NPV? Should the project be accepted?

c. What is the project's IRR? Should the project be accepted?

Reference no: EM131977537

Questions Cloud

Compute the present value of each alternative : Assuming you could earn 9 percent annually, compute the present value of each alternative:
Identified related party relationships and transactions : Define related party and discuss the required disclosure of the identified related party relationships and transactions.
Determine the growth rate of dividends : Cost of common stock equity Ross Textiles wishes to measure its cost of common stock equity. Determine the growth rate of dividends from 2011 to 2015.
Which loan has the lower effective interest cost : What is the effective interest rate on the LIBOR loan? Which loan has the lower effective interest cost?
Result from the investment in toaster ovens : If Jane faces a 30% tax rate, what expected project FCFs for each of the next five years will result from the investment in toaster ovens?
What annual contributions to retirement fund : What annual contributions to the retirement fund will allow you to receive the $23,000 annuity?
Selected under different interest rate levels : Plot the NPV profile graph and explain to Buridan, which project should be selected under different interest rate levels.
How much should she put in her budget for maintenance costs : Professor Shelley is creating a budget for her recently awarded research grant. How much should she put in her budget for maintenance costs?
Amount borrowed-compensating balance : What is the effective rate of interest? What would the effective rate be if Carey were required to make 12 equal monthly payments to retire the loan?

Reviews

Write a Review

Financial Management Questions & Answers

  Considering investing in one of well-diversified portfolios

You are considering investing in one of two well-diversified portfolios. Portfolio A has an expected return of 8% and a beta of 1.35 while Portfolio B has an expected return of 6% and a beta of 0.80. Assuming that you are a rational risk-averse inves..

  What is krells dividend yield and equity cost of capital

what is Krell's dividend yield and equity cost of capital? What is the price per share of NoGrowth stock if the firm's equity cost of capital is 12.4% ?

  What is the profitability index for each project

Consider the following two mutually exclusive projects: Year Cash Flow (A) Cash Flow (B) 0 –$ 341,000 –$ 51,000 1 54,000 24,900 2 74,000 22,900 3 74,000 20,400 4 449,000 15,500 which ever project you choose, if any, you require a 15 percent return on..

  What is portfolio expected return

The expected returns on these stocks are 9.5 percent, 12 percent, and 17.4 percent, respectively. What is the portfolio's expected return?

  Determine the annual financing cost to clear-field

Determine the annual financing cost to Clear-field under this arrangement if Clearfield borrows $750,000 and $500,000.

  What was the investor rate of return

An investor buys $16,000 worth of a stock priced at $20 per share using 55% initial margin. What was the investor's rate of return?

  Decide to cash in the perpetuity

If Earl’s children decide to cash in the perpetuity, how much money will they have to divide among themselves?

  What is its cost of common equity and WACC

The last dividend was D0 = $4.00, and it is expected to grow at a 5% constant rate. What is its cost of common equity and its WACC?

  If the rate of return for preferred stock

If the rate of return for preferred stock goes up, for example because the market has become more risky, the price of preferred stock goes down.

  Calculate effective annual yield rate

On Becca’s 1st birthday, a savings account was opened for her containing $10,000. By her 5th birthday, the account had grown to $13,500 and $1000 was added. By her 13th birthday the account had grown to $17,000 and $2000 was added. Use the time-weigh..

  How much will you have in the account after twenty years

How much will you have in the account after twenty years?

  Campc is a 5-year old chain of 12 medium-sized supermarkets

campc is a 5-year old chain of 12 medium-sized supermarkets. the supermarkets are targeting the middle- and top-income

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