Hassle-Free Web is bidding to provide web hosting services for Hotel Lisbon. Hotel Lisbon pays its current provider $10,000 per year for hosting its web page, handling transactions, etc. Hassle-Free figures that it will need to purchase equipment worth $15,100 up front and then spend $2,200 per year on monitoring, updates, and bandwidth to provide the service for 3 years. If Hassle-Free's cost of capital is 10.3%, can it bid less than $10,000 per year to provide the service and still increase its value by doing so?

Hassle-Free Web is bidding to provide web hosting services for Hotel Lisbon. Hotel Lisbon pays its current provider $10,000 per year for hosting its web page, handling transactions, etc. Hassle-Free figures that it will need to purchase equipment worth $15,100 up front and then spend $2,200 per year on monitoring, updates, and bandwidth to provide the service for 3 years. If Hassle-Free's cost of capital is 10.3%, can it bid less than $10,000 per year to provide the service and still increase its value by doing so?

Cornerstones of Cost Management (Cornerstones Series)

4th Edition

ISBN:9781305970663

Author:Don R. Hansen, Maryanne M. Mowen

Publisher:Don R. Hansen, Maryanne M. Mowen

Chapter19: Capital Investment

Section: Chapter Questions

Problem 4CE: Manzer Enterprises is considering two independent investments: A new automated materials handling...

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Hassle-Free Web is bidding to provide web hosting services for Hotel Lisbon. Hotel Lisbon pays its current provider $10,300 per year for hosting its web page, handling transactions, etc. Hassle-Free figures that it will need to purchase equipment worth $14,800 up front and then spend $2,200 per year on monitoring, updates, and bandwidth to provide the service for 3 years. If Hassle-Free's cost of capital is 9.8%, can it bid less than $10,300 per year to provide the service and still increase its value by doing so? Hassle-Free can bid as low as $-8833.53 (Round to the nearest dollar).
Hassle-Free Web is bidding to provide web hosting services for Hotel Lisbon. Hotel Lisbon pays its current provider $10,300 per year for hosting its web page, handling transactions, etc. Hassle-Free figures that it will need to purchase equipment worth $15,100 up front and then spend $2,100 per year on monitoring, updates, and bandwidth to provide the service for 3 years. If Hassle-Free's cost of capital is 9.5%, can it bid less than $10,300 per year to provide the service and still increase its value by doing so?
Hassle-Free Web is bidding to provide web hosting services for Hotel Lisbon. Hotel Lisbon pays its current provider $10,100 per year for hosting its web page, handling transactions, etc. Hassle-Free figures that it will need to purchase equipment worth $15,100 up front and then spend $2,000 per year on monitoring, updates, and bandwidth to provide the service for 3 years. If Hassle-Free's cost of capital is 10.3 %, can it bid less than $10,100 per year to provide the service and still increase its value by doing so? Hassle-Free can bid as low as $?
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1. Hassle-Free Web is bidding to provide web hosting services for Hotel Lisbon. Hotel Lisbon pays its current provider $10,200 per year for hosting its web page, handling transactions, etc. Hassle-Free figures that it will need to purchase equipment worth $15,200 up front and then spend $2,000 per year on monitoring, updates, and bandwidth to provide the service for 3 years. If Hassle-Free's cost of capital is 9.8%, can it bid less than $10,200 per year to provide the service and still increase its value by doing so? **round to the nearest dollar**
es eEgg is considering the purchase of a new distributed network computer system to help handle Its warehouse Inventories. The system costs $55,000 to purchase and install and $32,000 to operate each year. The system is estimated to be useful for 4 years. Management expects the new system to reduce the cost of managing Inventories by $60,000 per year. The firm's cost of capital (discount rate) is 10%. Required: 1. What is the net present value (NPV) of the proposed Investment under each of the following Independent situations? (Use the appropriate present value factors from Appendix C, TABLE 1 and Appendix C. TABLE 2.) 1a. The firm is not yet profitable and therefore pays no income taxes. 1b. The firm is in the 22% Income tax bracket and uses straight-line (SLN) depreciation with no salvage value. Assume MACRS rules do not apply. 1c. The firm is in the 22% Income tax bracket and uses double-declining-balance (DDB) depreciation with no salvage value. Given a four-year life, the DDB…
eEgg is considering the purchase of a new distributed network computer system to help handle its warehouse inventories. The system costs $60,000 to purchase and install and $30,000 to operate each year. The system is estimated to be useful for 4 years. Management expects the new system to reduce the cost of managing inventories by $62,000 per year. The firm's cost of capital (discount rate) is 9%. Required: 1. What is the net present value (NPV) of the proposed investment under each of the following independent situations? (Use the appropriate present value factors from Appendix C. TABLE 1 and Appendix C. TABLE 2.) 1a. The firm is not yet profitable and therefore pays no income taxes. 1b. The firm is in the 25% income tax bracket and uses straight-line (SLN) depreciation with no salvage value. Assume MACRS rules do not apply. 1c. The firm is in the 25% income tax bracket and uses double-declining-balance (DDB) depreciation with no salvage value. Given a four-year life, the DDB…