Logo
Home Study Material Contact Search
AI Chat FREE
  1. business
  2. finance
  3. 3. hyper mega awesome value inc. is evaluating a p

3. Hyper Mega Awesome Value Inc. is evaluating a project proposal. The project is expected to...

Free

90.2K

Verified Solution

Question

Finance

3. Hyper Mega Awesome Value Inc. is evaluating a projectproposal. The project is expected to require purchasing long-termassets with an installed cost of $400,000. It will also require anincrease in Net Working Capital of $25,000. At the end of the 4thyear, the project will be terminated. Selling the assets willresult in an after-tax gain of $15,000. The project is expected togenerate annual after-tax operating cash flows of $160,000 eachyear for 4 years. Hyper Mega Awesome Value Inc requires a return oncapital projects of 11%. Should they make the investment?

Answer & Explanation Solved by verified expert
4.4 Ratings (746 Votes)

Time line 0 1 2 3 4
Cost of new machine -400000
Initial working capital -25000
=Initial Investment outlay -425000
after tax operating cash flow 160000 160000 160000 160000
reversal of working capital 25000
+Proceeds from sale of equipment after tax =selling price* ( 1 -tax rate) 15000
+Tax shield on salvage book value =Salvage value * tax rate 0
=Terminal year after tax cash flows 40000
Total Cash flow for the period -425000 160000 160000 160000 200000
Discount factor= (1+discount rate)^corresponding period 1 1.11 1.2321 1.367631 1.5180704
Discounted CF= Cashflow/discount factor -425000 144144.1 129859.6 116990.62 131746.19
NPV= Sum of discounted CF= 97740.5493

Accept project as NPV is positive
Get Answers to Unlimited Questions

Join us to gain access to millions of questions and expert answers. Enjoy exclusive benefits tailored just for you!

Membership Benefits:
  • Unlimited Question Access with detailed Answers
  • Zin AI - 3 Million Words
  • 10 Dall-E 3 Images
  • 20 Plot Generations
  • Conversation with Dialogue Memory
  • No Ads, Ever!
  • Access to Our Best AI Platform: Zin AI - Your personal assistant for all your inquiries!
Become a Member

Transcribed Image Text

3. Hyper Mega Awesome Value Inc. is evaluating a projectproposal. The project is expected to require purchasing long-termassets with an installed cost of $400,000. It will also require anincrease in Net Working Capital of $25,000. At the end of the 4thyear, the project will be terminated. Selling the assets willresult in an after-tax gain of $15,000. The project is expected togenerate annual after-tax operating cash flows of $160,000 eachyear for 4 years. Hyper Mega Awesome Value Inc requires a return oncapital projects of 11%. Should they make the investment?

Other questions asked by students

Q

2 y 21 2 A B d 714 246 1 Made with retinitramural graph represents...

Algebra
Q

At the 0.05 level of significance, test for any significant differences in the treatments (physical activity)...

Statistics
Q

There are two significant evolutionary developments which distinguish hominins from their other primate \"cousins\": encephalization and habitual...

Medical Sciences
Q

Unless otherwise stated, all objects are located near the Earth's surface, where g = 9.80 m/s2...

Physics
Q

What are pre-emergent instructional strategies, emergent instructional strategies, basic instructional strategies and intermediate instructional strategies?

Psychology
Q

Please use Excel and show steps!! Greentrop Pharmaceutical Products are the world leader in the area...

Statistics
Q

9 Type the correct answer in each box Use numerals instead of words A manufacturer...

Basic Math
Q

Find the indefinite integral Check by differentiation 7 12 dz 1

Calculus
Q

Perform the operation indicated Sim 5x 6 2x 5 x 1 2x 5 4x 5

Algebra
Q

Exercise 5-16 A comparative balance sheet for Bramble Corporation is presented afa follows. Assets Cash...

Accounting
Q

Harris Company manufactures and sells a single product. A partially completed schedule of the company's...

Accounting
Q

The Bratz company manufactures and sells three products lines (LI,L2 & L3) Last month total...

Accounting