Share
Explore BrainMass

Capital Budgeting

Dereck, Inc. - net present value and internal rate of return

Dereck, Inc. is considering the investment of $86,000 in a new product. The product will generate cash flow of $18,500 per year for each year of its 6-year life and will have a salvage value of $5,000 at the end of its life. Dereck's cost of capital is 10%. 1) Calculate the net present value of the proposed investment. Ignore

Accounting

1. An increase in the discount rate: A) will increase the present value of future cash flows. B) will have no effect on net present value. C) will reduce the present value of future cash flows. D) is one method of compensating for reduced risk. 2. Suppose an investment has cash inflows of R dollars at the end of

Capital Budgeting: Investing in New Equipment and Work Space

1. Prince Company's required rate of return is 10%. The company is considering the purchase of three machines, as indicated below. Consider each machine independently. For this question, ignore income taxes. (a) Machine A will cost $25,00 and have a life of 15 years. Its salvage value will be $1,000, and cost savings are p

Capital budgeting proposals (annual cash inflows and net present value)

Chose the correct answer A corporation is assessing the risk of two capital budgeting proposals. The financial analysts have developed pessimistic, most likely, and optimistic estimates of the annual cash inflows which are given in the following table. The firm's cost of capital is 10 percent. Project A Initial Investme

Internal Rate of Return Based on Cash Flows

What is the internal rate of return on an investment with the following cash flows? Year...........Cash Flow 0 ................-$123,400 1 ................ $36,200 2 .................$54,800 3 .................$48,100

Leasing, Tax Deductions, and the Time Value of Money

The lessor can claim the tax deductions associated with asset ownership and realize the leased asset's residual value. In return, the lessor must pay tax on the rental income. a. Explain why a financial lease represents a secured loan in which the lender's entire debt service stream is taxable as ordinary income to the lessor

1000 words

Write a memo to the general manager explaining your analysis for the specialty spark plug project. Include the following information: Present the NPV and IRR calculated for the purchase of new equipment (Phase 3 task 1). Explain the effect of a sales volume increase on the total fixed costs, unit fixed costs, total vari

Net Present Value for a Five Year Project

A five year project has a projected net cash flow of $15,000, $25,000, $30,000, $20,000, and $15,000 in the next five years. It will cost $50,000 to implement the project. If the required rate of return is 20%, conduct a discounted cash flow calculation to determine the Net Present Value.

Simple Rate of Return

Chateau is winery in France, which is headed by Gerald Despinoy. Doing the fall season, is the busiest part of the year, and partime workers are hired to pick and process grapes. Gerald is currently looking for a harvesting machine to reduce the labor needed for picking. Addl info :( = represent French currency euro The w

Perference Ranking of Projects

Dimple Company has limited funds available for investments and must ration the funds among four competing projects. Selected information on the four projects follows: Project Investment Net Present Life of the Internal Rate Required Value Project (yrs) of Return A $800,000 $221,615 7 18% B $675,000 $210,000 12

Net Present Value Analysis

Rob plans to retire in 6 years and want to open some type of small business operation that can be managed within his free time away from his regular occupation. He's thinking about opening a Laundromat, he has determined the following: 1. Washers, dryers, and other equipment needed to open cost $194,000 2. 6,000 in working ca

Caledonia Products Integrative Problem

It's been two months since you took a position as an assistant financial analyst at Caledonia Products. Although your boss has been pleased with your work, he is still a bit hesitant about unleashing you without supervision. Your next assignment involves both the calculation of the cash flows associated with a new investment un

Valuation of Projects: Payback, NPV, IRR & MIRR

Chrome Corp. estimates its cost of capital at 11 percent. The company is considering two mutually exclusive projects whose after-tax cash flows are as follows: Project S: Year Cash Flow 0 -3000 1 500 2 2500 3 1500 4 1500 Project L: Year Cash Flow 0 -9000 1 1000 2 5000 3 5000 4 5

Metro Car Washes: Reviewing an Investment Proposal

Metro Car Washes, Inc. is reviewing an investment proposal. The initial cost as well as the estimate of the book value of the investment at the end of each year, the net after-tax cash flows for each year, and the net income for each year is presented in the following schedule. The salvage value of the investment at the end of e

Financial Decision Making: Class: Financial Managerial

On Your Mark is considering purchasing new manufacturing equipment that costs $1,300,000 and is expected to improve cash flows by $500,000 in year 1, $350,000 in year 2, $475,000 in year 3, $450,000 in year 4, and $300,000 in year 5. Key financial metrics for this capital budgeting project have been calculated and provided by

Making capital investment decisions

The accountant of your business has recently been taken ill through overwork. In his absence his assistant has prepared some calculations of the profitability of a project, which are to be discussed soon at the board meeting of your business. His workings, which are set out below, include some errors of principle. You can assume

Evaluating Net Present Value

If people evaluated the net present value prior to making an investment decision that he or she would be more able to make an educated decision. Explain this statement.

Integrative Problem Chapter 22 Questions and Chapter 21 problem #3

Integrative Problem Chapter 22 Questions 1. You purchase machinery for $23,958 that generates cash flow of $6,000 for five years. What is the internal rate of return on the investment? 2. The cost of capital for a firm is 10 percent. The firm has two possible investments with the following cash inflows: ____________________

forecast for the relevant unlevered net income

An organization is considering replacing a machine that requires an initial investment of $5 million and will yield annual operating cash inflows of $300,000 for each of the next 10 years. Operating cash outlays will be $30,000 for each year. The machine will require an overhaul investment will require an additional cash outlay

Accounting Risk in Capital Budgeting

1. Which of the following is NOT an acceptable method of accounting for risk in capital budgeting? A) Certainty equivalent approach B) Beta distribution analysis C) Probability trees D) Scenario analysis 2. Famous Danish Corp. is replacing an old cookie cutter with a new one. The cookie cutter is being sold for $25,000

Adjusted net present value

The Oak Grove Corporation is considering two mutually exclusive projects. Both require an initial outlay of $10,000 and will operate for 5 years. Project A will produce expected cash flows of $5,000 per year for years 1 through 5, whereas Project B will produce expected cash flows of $6,000 per year for years 1 through 5. Becaus

Calculating the internal rate of return (IRR)

The cost of investment $30,000 The estimated annual profit $6,000 for the first year The annual profit increases by 20% annually The useful life of the investment is 5 years Find the internal rate of return of the investment. Show calculation.

Analyzing cash flows of project

Semi-con is considering a new investment proposal that involves manufacturing and selling a new semiconductor chip . They have identified a operational manufacturing plant that is available for lease, and eleven key sales districts. They have assembled the following information: ?Revenues are expected to be $1,500,000, $1,250

25 multiple choice

See attached. 1. is a cost that requires a cash disbursement. 2. The salary forgone by a person who quits a job to start a business is an example of a(n) 3. Bull Company manufactures a part for its production cycle. The costs per unit for 5,000 units of this part are as follows: Heat Corporation has offered to sell

Capital Budgeting

Caledonia is considering two additional mutually exclusive projects. The cash flows associated with these projects are as follows: Year Project A Project B 0 -$100,000 -$100,000 1 32,000 0 2 32,000 0 3 32,000 0 4 32,000 0 5

Financial overview for global venture

I need to do the following for a global venture of Solar energy in the country of Sudan. The financial is total fiction, but I am having trouble of where to start with that and the sources of financing. This is for a powerpoint presentation not a paper. I just can't seem to get started and some help would be great. Prepar

Capital Budgeting: Key Financial Metrics

On Your Mark is considering purchasing new manufacturing equipment that costs $1,300,000 and is expected to improve cash flows by $500,000 in year 1, $350,000 in year 2, $475,000 in year 3, $450,000 in year 4, and $300,000 in year 5. Key financial metrics for this capital budgeting project have been calculated and provided by