Reference no: EM131349084
Keener Clothiers Inc. is considering investing $2 million in an automatic sewing machine to produce a newly designed line of dresses. The dresses will be priced at $200, and management expects to sell 12,000 per year for six years. There is, however, some uncertainty about production costs associated with the new machine. The production department has estimated operating costs at 70% of revenues, but senior management realizes that this figure could turn out to be as low as 65% or as high as 75%. The new machine will be depreciated at a rate of $200,000 per year (straight line, zero salvage). Keener's cost of capital is 16%, and its marginal tax rate is 39%. Calculate a point estimate along with best- and worst-case scenarios for the project's NPV. Round the answers to the nearest dollar.
Best-case scenario. Enter your answer in dollars. For example, an answer of $1.2 million should be entered as 1,200,000, not 1.2.
$
Point estimate. Use a minus sign to indicate a negative NPV. Enter your answer in dollars. For example, an answer of $1.2 million should be entered as 1,200,000, not 1.2.
$
Worst-case scenario. Use a minus sign to indicate a negative NPV. Enter your answer in dollars. For example, an answer of $1.2 million should be entered as 1,200,000, not 1.2.
$
|
What is the total payoff of the interest rate cap
: Suppose that a 1-year interest rate cap has a cap rate of 8% and a notional amount of $10 million. The frequency of settlement is quarterly and the reference rate is 3-month LIBOR. Assume that 3-month LIBOR for the next four quarters is as shown belo..
|
|
Considering manufacturing a product in space
: A company XYZ is considering manufacturing a product in space. The project lifetime is 10 years and has the following consecutive phases: Phase 1 (years 1 to 3): The engineering design and development requires 3 years. The present value of the net ca..
|
|
Calculate payback period for this project
: Pappy’s Potato has come up with a new product, the Potato Pet (they are freeze-dried to last longer). Pappy’s paid $132,000 for a marketing survey to determine the viability of the product. It is felt that Potato Pet will generate sales of $587,000 p..
|
|
Targeting investment toward longer term assets
: Targeting investment toward longer term (nonliquid) assets and using shorter term financing results in
|
|
Sewing machine to produce newly designed line of dresses
: Keener Clothiers Inc. is considering investing $2 million in an automatic sewing machine to produce a newly designed line of dresses. The dresses will be priced at $200, and management expects to sell 12,000 per year for six years. Calculate a point ..
|
|
Calculate the net investment for the new line
: The Fleming Company, a food distributor, is considering replacing a filling line at its Oklahoma City warehouse. The existing line was purchased several years ago for $600,000. Delivery and installation of the new line are expected to cost an additio..
|
|
What is component cost of debt for use in wacc calculation
: Haverford Company has a $1,000 par value bond outstanding that now has 25 years to maturity and an 8.00% annual coupon that is paid semiannually. The bond currently sells for $900.90, and the company's tax rate is 40%. What is the component cost of d..
|
|
What is the future value
: What is the future value of $2,700 in 20 years assuming an interest rate of 8 percent compounded semiannually?
|
|
Shorted futures contract on three-month treasury bills
: You shorted a futures contract on three-month Treasury bills. The quoted futures price when you shorted is 98.05. You hold the futures contract to maturity date and deliver the three-month Treasury bill. How much will you receive in exchange of the T..
|