Sensitivity Analysis : NPV, Profitability Index and IRR

Problem 8-41

Dunn Manufacturing Company is considering the purchase of a factory that makes valves. These valves would be used by Dunn to manufacture water pumps. The purchase would require an initial outlay of $1,564,800. The factory would have an estimated life of 10 years and no residual value. Currently, the company buys 500,000 valves per year at a cost of $1.50 each. If the factory were purchased, the valves could be manufactured for $0.90 each.

Required:

a. Determine the net present value of the proposed project and whether it should be accepted under each of the following assumptions.
1. The cost of capital is 12 percent.
2. The cost of capital is 14 percent.
3. The cost of capital is 16 percent.

b. Determine the profitability index under each of the following assumptions.

1. The cost of capital is 12 percent.
2. The cost of capital is 14 percent.
3. The cost of capital is 16 percent.

c. Determine the internal rate of return of the proposed project and indicate whether it should be accepted under each of the following assumptions.

1. The cost of capital is 12 percent.
2. The cost of capital is 14 percent.
3. The cost of capital is 16 percent.

Solution Summary

This solution illustrates how to compute the net present value, profitability index and internal rate of return under different discount rate assumptions.

Please view attachment for question.
a. Calculate the NPV,IRR, ProfitabilityIndex, and MIRR for this project with a cost of capital of 12%.
(see attached)
b.For a single conventional project, the NPV andIRR will agree on whether to invest or to not invest. However, in the case of two mutually exclusive projects, th

(10-1)
NPV
A project has an initial cost of $40,000, expected net cash inflows of $9,000 per year for 7 years, and a cost of capital of 11%. What is the project's NPV (Hint: Begin by constructing a time line.)
(10-2)
IRR
Refer to Problem 10-1. What is the Project's IRR?
(10-3)
MIRR
Refer to Problem 10-1 What is t

(See attached file for full problem description)
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Problem 7-9
NPV andIRR. A project that costs $3,000 to install will provide annual cash flows of $800 for each of the next 6 years.
Is this project worth pursuing if the discount rate is 10 percent?
Project NPV
How high can the discount rate be before y

A company is considering a project with a 6-year economic life. The project is expected to cost $200,000 and have a salvage value of $30,000. 5 year MACRS depreciation will be used. The company has a 10% cost of capital and a marginal tax rate of 35%. Careful analysis reveals that the company should expect to sell 100,000 to

I need help in understanding the cost of capital and how to figure it. Calculate the values for each project using the time value table- the cost of capital is 12%
1. NPV
2. IRR
3. Profitabilityindex
4.Payback Period
Year Project A Project B
0 $-30,000 $-60,000
1 $ 10,000 $20,000
2 $ 10,000 $20,000
3 $ 10,000 $20,

Conch Republic Electronics
Spent $750,000 to develop a new PDA
Spent an additional $200,000 for marketing study to determine the expected sales.
Can manufacture the new PDA with variable cost for $155.00 each.
Fixed Costs for the operation are estimated at $4.7 million per year.
Unit Price $360.00 each
Necessary eq

Conch Republic Electronics
Spent $750,000 to develop a prototype (or Model) for a new PDA
Spent an additional $200,000 for marketing study to determine the expected sales.
Can manufacture the new PDA with variable cost for $97.00 each.
Fixed Costs for the operation are estimated at $3.4 million per year.
Unit Price $275.0

Please help me develop a paper by providing a case analysis for the attached mini case. Use the questions at the end of the case for guidance, but remember you may add to your explanations. Please provide 2-3 pages in standard Case Analysis format. Also, please cite and list all references used.

Consider the data on the following two mutually exclusive projects under consideration by the Stephen Company:
Year
Project A
Project B
0
-30,000
-60,000
1
10,000
20,000
2
10,000
20,000
3
10,000
20,000
4
10,000
20,000
5
10,000
20,000
The cost of capital is 14%.