Martin Manufacturers is considering a five-year investment whichcosts $100,000. The investment will produce cash flows of $25,000each year for the first two years and $50,000 a year for each ofthe remaining three years. The company has a cost of capital of 12percent. What is the MIRR of the investment?
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The Short-Line Railroad is considering a $200,000 investment in either of two companies. The cash flows are as follows:
| Year | Electric Co. | Water Works | ||||
| 1 | $ | 100,000 | $ | 50,000 | ||
| 2 | 50,000 | 50,000 | ||||
| 3 | 50,000 | 100,000 | ||||
| 4 â 10 | 25,000 | 25,000 | ||||
a. Compute the payback period for both companies. (Round your answers to 1 decimal place.)
Electric Co= ____years
Water Company= ____ years
DDK Industries is considering a new capital budgeting project that will last for three years. The initial investment outlay for project equipment is expected to be $110,000. The equipment will be straight-line depreciated down to zero book value over the three year period. The expected market value of the project assets is forecasted to be $50,000 when the project is liquidated at the end of the third year. Project will require $7,000 Net Working Capital investments in years 1 and 2. The project does not require any investment in fixed assets during years 1 and 3, but a $10,000 investment is projected in year 2. DDKâs cost of capital is 12% and the project does not have a distinct risk profile. DDKâs tax rate is 35%. Based on extensive research, analysts have prepared the following incremental revenues and before tax costs:
| Year | 0 | 1 | 2 | 3 |
| Sales (Revenues) | 100,000 | 100,000 | 100,000 | |
| - Cost of Goods Sold (50% of Sales) | 50,000 | 50,000 | 50,000 | |
| Depreciation | 36,667 | 36.667 | 36,667 | |
| EBIT | 13,333 | 13,333 | 13,333 | |
| Capital Expenditures | -110,000 | 0 | -10,000 | 0 |
Note: Additional fixed capital investments are depreciated straight line over a three-year period; the first depreciation expense is deducted at the end of the year following the investment. The 50,000 liquidation value reflects enhancements realized through capital investments in fixed assets.
The after tax project cash flow including the terminal cash flow for the project in year 3 is closest to ___________?
