Notice: Function _load_textdomain_just_in_time was called incorrectly. Translation loading for the woocommerce-direct-checkout domain was triggered too early. This is usually an indicator for some code in the plugin or theme running too early. Translations should be loaded at the init action or later. Please see Debugging in WordPress for more information. (This message was added in version 6.7.0.) in /home/clouawmm/public_html/wp-includes/functions.php on line 6121

Notice: Function _load_textdomain_just_in_time was called incorrectly. Translation loading for the yith-woocommerce-ajax-search domain was triggered too early. This is usually an indicator for some code in the plugin or theme running too early. Translations should be loaded at the init action or later. Please see Debugging in WordPress for more information. (This message was added in version 6.7.0.) in /home/clouawmm/public_html/wp-includes/functions.php on line 6121

Notice: Function _load_textdomain_just_in_time was called incorrectly. Translation loading for the square domain was triggered too early. This is usually an indicator for some code in the plugin or theme running too early. Translations should be loaded at the init action or later. Please see Debugging in WordPress for more information. (This message was added in version 6.7.0.) in /home/clouawmm/public_html/wp-includes/functions.php on line 6121
The Sopchoppy Motorcycle Company is considering an investment... - Cloud Essays

Browse Our Directory

The Sopchoppy Motorcycle Company is considering an investment…

$10.00

The Sopchoppy Motorcycle Company is considering an investment of $600,000 in a new motorcycle. They expect to increase sales in each of the next three years by $400,000, while increasing expenses by $200,000 each year. They expect that they can carve out a niche in the marketplace for this new motorcycle for three years, after which they intend to cease production on this motorcycle and sell the manu- facturing equipment for $200,000. Assume the equipment is depreci- ated at the rate of $200,000 each year. Sopchoppy’s tax rate is 40%.

  1. What are the net cash flows for each year of the motorcycle’s three-year life?
  2. What is the net present value of the investment if the cost of cap- ital is 10%?
  3. What is the net present value of the motorcycle investment if the cost of capital is 5%?
  4. What is the profitability index of this investment if the cost of capital is 5%?
  5. What is the payback period of the investment?
  6. What is the discounted payback period of the investment if the cost of capital is 5%?
  7. What is the internal rate of return of the investment?
  8. What is the modified internal rate of return of the motorcycle investment if the cash flows are reinvested at 5%?
  9. If the cost of capital is 10%, should Sopchoppy invest in this motorcycle?
SKU: the-sopchoppy-motorcycle-company-is-considering-an-investment Category:
Share with others

Details

The Sopchoppy Motorcycle Company is considering an investment of $600,000 in a new motorcycle. They expect to increase sales in each of the next three years by $400,000, while increasing expenses by $200,000 each year. They expect that they can carve out a niche in the marketplace for this new motorcycle for three years, after which they intend to cease production on this motorcycle and sell the manu- facturing equipment for $200,000. Assume the equipment is depreci- ated at the rate of $200,000 each year. Sopchoppy’s tax rate is 40%.

  1. What are the net cash flows for each year of the motorcycle’s three-year life?
  2. What is the net present value of the investment if the cost of cap- ital is 10%?
  3. What is the net present value of the motorcycle investment if the cost of capital is 5%?
  4. What is the profitability index of this investment if the cost of capital is 5%?
  5. What is the payback period of the investment?
  6. What is the discounted payback period of the investment if the cost of capital is 5%?
  7. What is the internal rate of return of the investment?
  8. What is the modified internal rate of return of the motorcycle investment if the cash flows are reinvested at 5%?
  9. If the cost of capital is 10%, should Sopchoppy invest in this motorcycle?