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Ratios, NPV and IRR Analysis

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There are a total of 4 problems

The attached chapter problems 13-4, 13-10 & 14-6 . Use Excel or Word for each problem.

Use the attached Excel spreadsheet to calculate the Rental Property Analysis. Please complete the cash flow projections and calculate the NPV, IRR and MIRR of the two scenarios. Ignore tax considerations in this analysis. Do not change any formatting. Also, as an aid I have attached 2 PPT presentations and related lecture material in word format.

Prob 13.4

Double wide dealers has an ROA of 10%, a 2% profit margin and a return on equity equal to 15%
What is the company's total asset turnover? What is firm's equity multipler?

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Prob 13.4

Doublewide dealers has an ROA of 10%, a 2% profit margin and a return on equity equal to 15%
What is the company's total asset turnover? What is firm's equity multipler?

Ans.

ROA= NET INCOME/TOTAL ASSETS =10%

PROFIT MARGIN= NET INCOME/SALES =2% Sales /Net Income= 100/2 (Reciprocal of Profit Margin)

RETURN ON ...

Solution Summary

This explains the concept of various ratios, NPV, capital budgeting and other related concepts.

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Analysis of Problem

Problem 16

A company is considering two alternative methods of producing a new product. The relevant data concerning the alternatives are presented below:

Alternative Alternative
I II
Initial investment $64,000 $120,000
Annual receipts $50,000 $60,000
Annual disbursements $20,000 $12,000
Annual depreciation $16,000 $20,000
Expected life 4 yrs 6 yrs
Salvage value 0 0

At the end of the useful life of whatever equipment is chosen the product will be discontinued. The company's tax rate is 50 percent and its cost of capital is 10 percent.

a. Calculate the net present value of each alternative.
b. Calculate the benefit cost ratio for each alternative.
c. Calculate the internal rate of return for each alternative.
d. If the company is not under capital rationing which alternative should be chosen? Why?
e. Again assuming no capital rationing, suppose the company plans to produce the product indefinitely rather than quit when the equipment wears out. Which alternative should the company select? Why?
f. If the company is experiencing severe capital rationing, and plans to terminate production when the equipment wears out, would any of your answers above change?

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