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Capital Budgeting

Internal rate of return.

Summer Company is considering three capital expenditure projects. Relevant data for the projects are as follows. See Attachment for Spreadsheet Annual income is constant over the life of the project. Each project is expected to have zero salvage value at the end of the project. Summer Company uses the straight-line method

Watson Leisure Time Sporting Goods: Calculate NPV, is new equipment feasible?

Watson Leisure Time Sporting Goods has improved operations over time and the company needs to make a decision related to an equipment decision. The company plans to purchase a new piece of equipment (to be used over a six year period) for $320,000. Assume the EBDT and depreciation (based upon the use of the 5-year MACRS

Net Present Value - most likely, pessimistic, optimistic rosy

Below is a earning's forecast for a "Most Likely" Scenario. Determine the Net Present Value for each of the following three scenarios. Most Likely Conditions as show below Pessimistic Sales are only 175,000 units annually, and Cost of Goods sold raises from 70% of Sales revenue to 75% for all years. Price drops t

LiveForever Biotechnology Corp: Net Present Value calculations

LiveForever Biotechnology Corporation (LFBC) has a new potential drug developed by their research group for which they are planning the marketing. The plan has three steps: 1) development (gaining approvals and designing processes and packaging), 2) marketing as a proprietary drug (no direct competitors) and 3) marketing as a g

NPV (Wolverine Corporation)

Hello, My problem is based on NPV. I am having trouble because I keep coming up with different answers. Will you please help me and show all work including explanations as to why you came to that conclusion? Thank you so much for your time! ***I am really confused and any help would be greatly appreciated!*** --------

Business: Capital Budgeting

The owner of a new startup company, GreatIdea LLC, needs a working capital analysis for the coming four quarters to assist with her cash flow concerns. Unlevered Net Income is expected to be zero for the first two quarters and $100,000 in quarter 3 and $300,000 in quarter 4. Accounts payable will be constant at $50,000 per qu

Net Present Value for Periodical Sales

National Book and Periodical Sales (NBPS) is considering a proposal to offer a proprietary electronic book reader. They have hired a company to develop and produce a product in 2010 at a cost of $1.5 million which will be depreciated straight line over 5 years. The reader would sell for $200 each which is the cost of producin

Capital Budgeting Methods: Evaluating Mutually-Exclusive Projects

Project S has a cost of $10,000 and is expected to produce benefits (cash flows) of $3,000 per year for 5 years. Project L costs $25,000 and is expected to produce cash flows of $7,400 per year for 5 years. Calculate the two projects' NPV's, IRR's, MIRRs and PIs, assuming a cost of capital of 12%. Which project would be selecte

Logic of the business process of using Structured English

In a relatively small company that sells thin, electronic keypads and switches, the rules for selling products are such that sales representatives are assigned to unique regions of the country. Sales come either from cold calling, referrals, or current customers with new orders. A sizable portion of their business comes from ref

Present Structured English: Decision Table and Logic

An organization is in the process of upgrading microcomputer hardware and software for all employees. Hardware will be allocated to each employee in one of three packages. The first hardware package includes a standard microcomputer with a color monitor of moderated resolution and moderate storage capabilities. The second packag

Budgeting and Profit Planning

See attached. Wynn Corporation is approximating the following sales for the first six months of the next year: January.......................$212,000.00 February.....................$385,000.00 March..........................$275,000.00 April.............................$500,000.00 May..............................$325

Two projects: apply profiability index, NPV

The required return is 12% on a project. Year Project Y Project Z 0 -35,000 -60,000 1 16,000 25,000 2 13,000 24,000 3 15,000 22,000 4 11,000 21,000 a) What is the profitability index for each project? b) What is the NPV for each project? c) Which (if any) of t

Investment: Apply Payback, NPV, IRR & Profitability Index

Year Cash Flow(A) Cash Flow(B) 0 -325,000 -30,000 1 43,000 15,800 2 51,000 13,100 3 69,000 12,700 4 480,000 9,700 15% return on the investment is required. a) if you apply payback criterion, which investment will you choose and why. b) if you apply

Present Value problem

Find the present value of the annuity necessary to fund the withdrawal of $900 per month for 15 years, if the annuity earns 4% per year. (assume end-of-period withdrawal and compounding at the same intervals as withdrawal.

Sweeny Enterprises: NPV and IRR methods to evaluate two investment opportunities

Sophia Sweeny, the president of Sweeny Enterprises, is considering two investment opportunities. Because of limited resources, she will be able to invest in only one of them. Project A is to purchase a machine that will enable factory automation; the machine is expected to have a useful life of four years and no salvage value. P

Component Costs of Capital and the WACC

Star Products Company is a growing manufacturer of automobile accessories whose stock is actively traded on the over-the-counter (OTC) market. During 2009, the Dallas- based company experienced sharp increases in both sales and earnings. Because of this recent growth, Melissa Jen, the company's treasurer, wants to make sure that

Project Evaluation for Machine Purchase & Project Performance

1. Sanjay's Incorporated is analyzing two machines to determine which one it should purchase. The company requires a 14% rate of return and uses straight-line depreciation to a zero book value. Machine A has a cost of $290,000, annual operating costs of $8,000, and a 3-year life. Machine B costs $180,000, has annual operating co

Evaluating Projects using NPV, IRR & PI

Please see attached file. 1) The X Corp has identified the following two mutually exclusive projects. X Corp has a cost of capital of 10%. What is the NPV, IRR and PI of each project and which project should they accept and why? TIME PROJECT A PROJECT B 0 -10,000 -10,000 1 12,000 100 2 100 100 3 100 100 4 100 16,000

Rate of return on a project

Which one of the following projects should you accept? a. A project with an IRR of 12.7 percent and a required return of 13 percent. b. A project with an NPV of -$121.21. c. A project with a PI of 1.03. d. A project with an AAR of 13.8 percent and a required AAR of 14 percent

Principles of managerial finance - 50 multiple choice questions

Please complete the attached 50 multiple choice practice problems 1 Finance can be defined as A) The system of debits and credits. B) The science of the production, distribution, and consumption of wealth. C) The art and science of managing money. D) The art of merchandising products and services. Answer

Multiple Choice/ T-F

I need help with the answers. True/False . Please indicate if the statement is True or False in the space provided below. 1. The break-even model expresses the volume of output as a unit quantity. 2. According to the DuPont Analysis, an increase in net profit margin will decrease return on assets.

Finance: NPV, IRR and payback period

Making Norwich Tools Lathe Investment Decision. Norwich Tool, a large machine shop, is considering replacing one of its lathes with either of two new lathes lathe A or lathe B. Lathe A is a highly automated, computer-controlled lathe; lathe B is a less expensive lathe that uses standard technology. To analyze these alternatives,

Capital Budgeting

You are considering opening a new plant. The plant will cost $100 million upfront and will take a year to build. After that it is expected to produce profits of $30 million at the end of every year of production. The cash flows are expected to last forever (perpetuity). Calculate the NPV of the investment opportunity if the cost

Investment decisions: Innovation Co, Elm Dale Enterprises, Markov Manufacturing

Please show all work. Excel can also be used. 1. Innovation Company is thinking about marketing a new software product. Upfront costs to market and develop the product are $5 million. The product is expected to generate profits of $1 million per year for ten years. The company will have to provide support expected to cost $1

Comparing Investment

3.Comparing Investment Criteria Define each of the following investment rules and discuss any potential shortcomings of each. In your definition, state the criterion for accepting or rejecting independent projects under each rule. a. Payback period. b. Average accounting return. c. Internal rate of return. d. Profitability i

Capital Budgeting

Suppose Projects A and B have the Co and C1 after tax net cash flows shown below. The Net Present Value Profiles for Project's A and B will cross over one another at what approximate discount rate? Project Co C1 A -500 +700 B -1000 +1300 A) 0 % B) 10% C) 16.67% D) 20% E) 21.37% F) No cross

Capital Budgeting

If the NPV of a project with conventional cash flow is $500 and the required rate of return is 8%, the IRR must be: A) equal to $500 B) Less than 8% C) equal to 8% d) greater than 8% e) not enough information provided to accurately choose one of the answers above