Explore BrainMass

Net Present Value (NPV)

NPV and Cash Flow

Tobacco Company of America is a very stable billion dollar company with sales growth of about 5 percent per year in good or bad economic conditions. Because of this stability (a correlation coefficient with the economy of + .3, and a standard deviation of sales of about 5 percent from the mean), Mr. Weed, the vice president of

Wexler Company: Present Value of Project

The Wexler Company is considering the purchase of a new machine costing $250,000. This machine is estimated to cost $5,000 per year in operating expenses but it will allow the company to earn an additional $100,000 per year in revenues and at the end of 3 years the machine will have a salvage value of $40,000. If the required ra

Net Income: Calculate the Net Income for Ball Corp

Please help with the following problem. Consider the following information for Ball Corp. Selling and administrative expense................................ $ 50,000 Depreciation expense.................................................. 80,000 Sales................................................................

Calculating the NPV of New Equipment

Photographic laboratories recover and recycle the silver used in photographic film. Stikine River photo is considering purchase of improved equipment for their laboratory at Telegraph Creek. Here is the information they have: - The equipment costs $100,000 and will cost $80,000 per year to run. - It has an economic life of 1

Cash Flows and NPV: Johnny's Lunches

Cash Flows and NPV. Johnny's Lunches is considering purchasing a new, energy-efficient grill. The grill will cost $40,000 and will be depreciated according to the 3-year MACRS schedule. It will be sold for scrap metal after 3 years for $10,000. The grill will have no effect on revenues but will save Johnny's $20,000 in energy ex

Sensitivity analysis

The Rustic Welt Company is proposing to replace its old welt-making machinery with more modern equipment. The new equipment cost $9 million (the existing equipment has zero salvage value). The attraction of the new machinery is that it is expected to cut manufacturing costs from their current level of $8 a welt to $4. However, a

Expected Gain from Acquisition

Hampshire-Cathaway (H-C), a large established corporation with no growth in its real earnings, is considering acquiring 100% of the shares of Trilennium Corporation, a young firm with a high growth rate of earnings. The acquisitions analysis group at H-C has produced the following table of relevant data:

Investment Proposal: Calculating NPV for Varying Costs of Capital

Question: Dane Cosmetics is evaluating a new fragrance-mixing machine. The machine requires an initial investment of $24,000 and will generate after-tax cash inflows of $5,000 per year for 8 years. For each of the costs of capital listed, 1) calculate the net present value (NPV), 2) indicate whether to accept or reject the machi

Income statement form - Vincent Corporation

Vincent Corporation had income from continuing operations of $800,000 (after taxes) in 2007. In addition, the following information, which has not been considered, is as follows. 1. In 2007, Vincent experienced an uninsured earthquake loss in the amount of $200,000. 2. A machine was sold for $140,000 cash during the year a

Common size ratios, 2/10 N/30, NPV, FV, WACC, capital structure

Question 1 (2 points) Regarding the term 2/10 N/30, which one of the following is true? a. the first part says: if payment is received within 10 days, only 98% of the balance needs to be paid b. the second part says: a 30% discount is available if a minimum number (N) of items are purchased c. the second pa

Multiple choice questions

Mark the correct answer or fill in the answer sheet at the end 1. Which of the following statements best represents what finance is about? a. How political, social, and economic forces affect corporations b. Maximizing profits c. Creation and maintenance of economic wealth d. Reducing risk 2. Which of the followin

Risk Adjusted NPV: The Hokie Corporation

The Hokie 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. Because pr


United Pigpen is considering a proposal to manufacture high protein hog feed. The project would make use of an existing warehouse, which is currently rented out to a neighboring firm. The next year's rental charge on the warehouse is $100,000 and thereafter the rent is expected to grow in line with inflation at 4% a year. In add

Capital budgeting, cost of capital, issuing bonds, dividend

CORPORATE FINANCE. Eighth edition from: Ross. Westerfield. And Jaffe. ISBN 978-0-07-310590-1 MHID 0-07-310590-2 Part of ISBN 978-0-07-333718-0 MHID 0-07-333718-8 Please answer each of the following questions using the short answer format. The ideal responses for each question will be free of writing errors and mus

NPV Method and Cash Flow Estimation

Please help answer the following problems. 1. The Payback period and the IRR methods are inferior to the NPV method, but firms still use these methods. Provide a rationale for this inconsistency. Why are they inferior to the NPV method? 2. Discuss some problems associated with cash flow estimation for a project.

The Jackson Company new machine: PVB, PVC, NPV

The Jackson Company is considering the purchase of a new machine that is expected to reduce cash outflows. The cost of this machine is $29,000. The annual reduction in cash outflows is as follows: See attached doc. If the cost of capital is 10%, please calculate the following: - A. The Present Value of the Benefits (PVB)

NPV Bond GSB CorpFin Inc

GSB CorpFin Inc. is considering issuing debt to finance its expansion in a strategic consulting division. Detailed analysis by the firm shows that an initial investment needed is $100mln and the present value of cash flows from this expansion (excluding the initial investment) is $500mln. $100mln is a fixed cost and the investme

Considering expanding operation

You are a manger at Percolated Fiber, which is considering expanding its operation in synthetic fiber manufacturing. Your boss comes into your office, drops a consultant's report on your desk, and complains, We owe these consultants $1 million for this report and I am not sure their analysis makes sense. Before we spend the $

Cost of Capital, Payback Periods, and Incremental Earnings

Fast Track Bikes is thinking of developing a new composite road bike. Development will take six years and the cost is $200,000 per year. Once in production, the bike is expected to make $300,000 per year for 10 years. 1. Assuming the cost of capital is 10%, calculate the NPV of this investment opportunity. Should the compan

Present Value and Investment

19. Monson Company is considering three investment opportunities with cash flows as described below: Project A: Cash investment now $15,000 Cash inflow at the end of 5 years $21,000 Cash inflow at the end of 8 years $21,000 Project B: Cash investment now $11,000 Annual cash outflow for 5 years $ 3,000

Estimating Net Present Value

General Auto (GA) Corporation is developing a new model of a compact hybrid car. This car is assumed to generate sales for the next five years. GA has gathered information about the following quantities through focus groups with the marketing and engineering departments. Fixed cost of developing the car. This cost is assume

Capital Budgeting problem

See the attachment. thanks ABC is considering purchasing the existing business of a competitor who produces Model X-Ray Superconductors. The life of this product is estimated to be 20-years, after which the assets will be sold. The details of the transaction are as follow: Total purchase price: Company's assets (e.g

Decision-making using Net present value analysis.

Sandy Rose was given two options for receiving her winnings, if she won, from the Reader's Digest sweepstakes. Option A is a payment of $1 million immediately, plus $137,932 per year for the next 29 years. Option B is an immediate payment of $167,000, plus additional payments of $167,000 per year for the next 29 years. Which

Brown Stone Corporation

I need help with the following... Brown Stone Corporation, maker of customized electric guitars is contemplating the investment of $1,000,000 in a new production facility. The economic life of the facility is estimated to be five years at which time the facility will be obsolete and have no salvage value. The firm will use

Steele Electronics: Economic Profit and NPV

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 ca

NPV question

See attached. Please show in Excel. Bauer Industries is an automobile manufacturer. Management is currently evaluating a proposal to build a plant that will manufacture lightweight trucks. Bauer plans to use a cost of capital of 12% to evaluate this project. Based on extensive research, it has prepared the following increm