Purchase Solution

Steele Electronics: Economic Profit and NPV

Not what you're looking for?

Ask Custom Question

Please use the attached spreadsheet

Steele Electronics is considering an investment in a new component that requires a $100,000 investment in new capital equipment, as well as additional net working capital. The investment is expected to provide cash flows over the next five years. The anticipated earnings and project free cash flows for the investment are found in the table. (the table attached in the spreadsheet)

a. Assuming a project cost of capital of 11.24%, calculate the project's NPV and IRR.
b. Steele is considering the adoption of economic profit as a performance evaluation tool. Calculate the project's annual economic profit using the invested capital figures found in the table. How are your economic profit estimates
related to the project's NPV?
c. How would your assessment of the project's worth be affected if the economic profits in 2006 and 2007 were both negative? (No calculations required)

Attachments
Purchase this Solution
Solution Summary

Steps for calculating NPV and IRR are provided.

Solution provided by:
Jayant Kumar, MBA
Education
  • MBA, Indian Institute of Finance
  • Bsc, Madras University
Recent Feedback
  • "I've posted a similar question for another course. It's post 657940, and it's a practice problem that I'd like to use for the final exam. Your help will be greatly appreciated. "
  • "thank you!"
  • "Thank you again Jayant. You are super fast. "
  • "Thank you Jayant. You are appreciated. "
  • "Again, thank you Jayant. You are wonderful. "
Purchase this Solution
Free BrainMass Quizzes
Academic Reading and Writing: Critical Thinking

Importance of Critical Thinking

Social Media: Pinterest

This quiz introduces basic concepts of Pinterest social media

Six Sigma for Process Improvement

A high level understanding of Six Sigma and what it is all about. This just gives you a glimpse of Six Sigma which entails more in-depth knowledge of processes and techniques.

Operations Management

This quiz tests a student's knowledge about Operations Management

Organizational Behavior (OB)

The organizational behavior (OB) quiz will help you better understand organizational behavior through the lens of managers including workforce diversity.

View More Free Quizzes
Related BrainMass Solutions

  • project's NPV and IRR

    242808 Project's NPV and IRR See the attached file. 9-5 Economic Profit and NPV Steele Electronics is considering an investment in a new component that requires $100,000 investment in new capital equipment, as well as additional net working capital

  • Economic Profit and NPV for Steele Electronics

    243069 Economic Profit and NPV for Steele Electronics Economic Profit and NPV Steele Electronics is considering an investment in a new component that requires a $100,000 investment in new capital equipment, as well as additional net working capital

  • Purchase probability

    59961 Purchase probability Steele Electronics, Inc. sells expensive brands of stereo equipment in several shopping malls throughout the northwest section of the United States.

  • Economic Value Added and NPV and IRR

    627845 Economic Value Added and NPV and IRR Explain Economic Value Added and compare it with NPV and IRR methods of capital budgeting in terms of capital budgeting project evaluation methods.

  • Program Evaluation

    431778 Program Evaluation of Public and Non-profit Organizations A program evaluator is both blessed and cursed with the myriad of possible information sources available.

  • Dot Point revenue; percentage of completion method

    What is the rate of gross profit on the installment sales made by Steele Corporation during 2008? 75% 60% 40% 25% 1.

  • Statistics

    Nicklaus Electronics manufactures electronic components used in the computer and space industries.

  • NPV Calculations for Expanding Company.

    A positive NPV guarantees the investors that the profit of the company would increase and this increase in profit will be repaid to the investors in dividend or capital gains.

  • Scenario Analysis

    TAXES & DEPRECIATION: YEAR 1 = $4,500,000 YEAR 2 = $4,500,000 YEAR 3 = $4,500,000 1) NOPAT, CASH FLOW & ECONOMIC PROFIT FOR EACH YEAR 2) NPV 3) PRESENT VALUE OF STREAM OF ECONOMIC PROFITS VS.

View More Related Solutions