What is the net present value of the project

Assignment Help Financial Management
Reference no: EM132033170

Fairfax Paint is evaluating a 2-year project that would involve buying equipment for 330,000 dollars that would be depreciated to 20,000 dollars over 2 years using straight-line depreciation. Cash flows from capital spending would be 0 dollars in year 1 and 34,000 dollars in year 2. To finance the project, Fairfax Paint would borrow 330,000 dollars. The firm would receive 330,000 dollars from the bank today and would pay the bank $0 in 1 year and 369,336 dollars in 2 years (consisting of an interest payment of 39,336 dollars and a principal payment of 330,000 dollars). Relevant annual revenues are expected to be 270,000 dollars in year 1 and 266,000 dollars in year 2. Relevant annual costs are expected to be 70,000 dollars in year 1 and 71,000 dollars in year 2. The tax rate is 50 percent. The cost of capital is 8.86 percent and the interest rate on the loan would be 5.79 percent. What is the net present value of the project?

Reference no: EM132033170

Questions Cloud

Dependent sample with two variables : What inferential statistic would you use for a independent sample with two variables?
Would the teacher make a good teacher for the gifted : Discuss the connections between the textbook and your research in regards to expectations placed on these students.
What is the probability of randomly selecting 1 woman : A. What is the probability of randomly selecting 1 woman with a height less than 65.5 inches?
How to develop hypothesis and consider significance of issue : Reflect on how to develop a hypothesis and consider the significance of the issue you are exploring for your Final Project
What is the net present value of the project : The cost of capital is 8.86 percent and the interest rate on the loan would be 5.79 percent. What is the net present value of the project?
What proportion of the packages in the town are delivered : Service A has 60% of all the scheduled deliveries, service B has 30%, and service C has the remaining 10%. Their on-time rates are 80%, 60%, and 40%
Practice thinking critically about privacy-related issues : Describe how you would handle this scenario using the five-step decision-making process provided in the textbook.
Calculate the intrinsic value of the stock : Company A’s stock is trading at $40 per share. Calculate the intrinsic value of the stock
Dependent sample with two variables : What inferential statistics would you use for a dependent sample with two variables?

Reviews

Write a Review

Financial Management Questions & Answers

  Estimated salvage value at the time is expected

A company has decided to purchase new office furniture with a useful life of 12 years for $100,000. Sales tax for the furniture was $6,000, and inbound transportation costs were $4,000. Its estimated salvage value at the time is expected to be $5,000..

  Compute the discounted payback statistic for project

Compute the discounted payback statistic for Project D if the appropriate cost of capital is 13 percent and the maximum allowable discounted payback is four yea

  What is required rate of return on stock with beta

Assume that the risk-free rate is 6.5% and the required return on the market is 12%. What is the required rate of return on a stock with a beta of 1.5?

  Evaluating company likely future financial performance

What are some qualitative factors that analysts should consider when evaluating a company's likely future financial performance?

  Capital expenditure or operating expenditure

If Halley Industries reimburses employees who earn master's degrees and who agree to remain with the firm for an additional 4 years, should the expense of the tuition reimbursement be categorized as a capital expenditure or an operating expenditure?

  Considering cash purchase of the stock of grips tool

Newman manufacturing is considering a cash purchase of the stock of Grips Tool. During the year just? completed, Grips earned ?$3.03 per share and paid cash dividends of ?$1.33 per share ?(D0equals $ 1.33?). What is the maximum price per share that N..

  The maintenance expenses on a rental house

The maintenance expenses on a rental house you own average $200 a month. The house cost $219,000 when you purchased it four years ago. A recent appraisal on the house valued it at $239,000. If you sell the house you will incur $14,000 in real estate ..

  What is the value of its operations

Suppose Leonard, Nixon, & Shull Corporation’s projected free cash flow for next year is $100,000, and FCF is expected to grow at a constant rate of 6%. If the company’s weighted average cost of capital is 11%, what is the value of its operations?

  What would you expect its levered equity beta to be

If the firm were to increase its leverage from $15 billion to $18 billion and use the cash to repurchase shares, what would you expect its levered equity beta to be?

  What is the amount of bad debt deduction

Dr. D, a dentist, performed a root canal for a patient and charged him $300. The patient paid $100, then left town, never to be seen again. What is the amount of bad debt deduction, if any, that D may claim assuming that she is a cash basis taxpayer?

  Death benefit to be purchased for set amount of premium

Which of the following types of life insurance allows the greatest amount of death benefit to be purchased for a set amount of premium?

  What is the required rate of return on portfolio

What is the required rate of return on a portfolio consisting of 80% of Stock X and 20% of Stock Y?

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