Vastine, Nova and Benson: Calculate book value, payback period, NPV, IRR

1. Vastine Medical, Inc. is considering replacing its existing computer system, which was purchased 2 years ago at a cost of $325,000. The system can be sold today for $200,000. It is being depreciated usinf MACRS and a 5-year recovery period (see Table 3.2, page 108). A new computer system will cost $500,000 to purchase and install. Replacement of the computer system would not involve any change in net working capital. Assume a 40% tax rate.

a. Calculate the book value of the existing computer system.
b. Calculate the after-tax proceeds of its sale for $200,000.
c. Calculate the initial investment associated with the replacement project.

2. Nova Products has a 5-year maximum acceptable payback period. The firm is considering the purchase of a new machine and must choose between two alternative ones. The first machine requires an initial investment of $14,000 and generates annual after-tax cash inflows of $3,000 for each of the next 7 years. The second machine requires an initial investment of $21,000 and provides an annual cash inflow after taxes of $4,000 for 20 years.

a. Determine the payback period for each machine.
b. Comment on the acceptability of the machines, assuming that they are independent projects.
c. Which machine should the firm accept? Why?
d. Do the machines in the problem illustrate any of the weaknesses of using payback? Discuss.

3. Benson Designs has prepared the following estimates for a long-term project it is considering. The initial investment is $18,250, and the project is expected to yield after-tax cash inflows of $4,000 per year for 7 years. The firm has a 10% cost of capital.

a. Determine the net present value (NPV) for the project.
b. Determine the internal rate of return (IRR) for the project.
c. Would you recommend that the firm accept or reject the project? Explain your answer

Solution Summary

The book value of the existing computer systems for Vastine Medical, Inc is provided.

Project SS costs $52,125, its expected net cash flows are $12,000 per year for 8 years, its WACC is 12%.
What is the project's NPV?
IRR?
MIRR?
Payback Period?
Discounted Payback Period?
(Show calculations)

Calculate the payback period and the NPV using the information below.
Cost of Capital = 13%
Initial Investment 100,000
Cash inflow 1 15,000
Cash inflow 2 20,000
Cash inflow 3 30,000
Cash inflow 4 35,000
Cash inflow 5 40,000
the IRR is closest 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. Profitability index
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,

(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

Projects A and B, of equal risk, are alternatives for expanding Rosa Company's capacity. The firm's cost of capital is 13%. The cash flows for each project are shown in the following table.
Project A Project B
Initial Investment (CFo) $80,000 $50,000
Year (t)

Question 1
Assume you have just been promoted junior financial manager of a company. You are very smart and are planning to be promoted in the next 2-2.5 years. An associate of your company shows you a project with the following cash flows.
End of Year Cash Flows
0 -$100,000
1 $40,000
2 $40,000
3 $40,000
4 $40,000
5 -$

Can someone help with the following question?
The following is stream of expect cash flows from a project to replace an old sail boat with a new one. The new boat will cost $15,000 and will be good for 5 years. It will be traded-in for another boat at the end of its useful life. The following cash flows are expected:
Ye