17. Walker & Campsey wants to invest in a new computer system, and management has narrowed the choice to Systems A and B. System A requires an up-front cost of $100,000, after which it generates positive after-tax cash flows of $60,000 at the end of each of the next 2 years. The system could be replaced every 2 years, and the
Wachowicz Inc. is considering two average-risk alternative ways of producing its patented polo shirts. Process S has a cost of $8,000 and will produce net cash flows of $5,000 per year for 2 years. Process L will cost $11,500 and will produce cash flows of $4,000 per year for 4 years. The company has a contract that requires it
A firm uses a single discount rate to compute the NPV of all its potential capital budgeting projects, even though the projects have a wide range of nondiversifiable risk. The firm then undertakes all those projects that appear to have positive NPV's. Briefly explain why such a firm would tend to become riskier over time.
Need assistance with the following question. Need an explanation of corporate risk mitigation techniques used in capital budgeting. Thanks
Your company undertakes a project that requires an initial investment in equipment of $467,000 and $68,000 in working capital and the company estimates that it will provide $121,000 in after tax cash inflows for seven years. The firm's cost of capital and hurdle rate is 8.6%. The estimated after tax salvage value is $98,000. Re
Please see the attachment. Sensitivity Analysis NPV Question A project has an initial investment of $200.00. You have come up with the following estimates of the projects with cash flows. Pessimistic NPV Most Likely Optimistic Revenues 30 40 50 Costs -20 -16 -10 If the cash flows are perpetuities and t
The Cigar Candy Company is considering a new machine that would increase the firm's earning before taxes and depreciation by $99,700 for eight years. The machine would cost $529,000, last eight years, have no salvage value and would be classified as five year class property for MACRS. The firm's marginal tax rate is 40%. The fir
Dungan Corporation is evaluating a proposal to purchase a new drill press to replace a less efficient machine presently in use. THe cost of the new equipment at time 0, including delivery and installation, is $200,000. If it is purchased, Dunagn will incur costs of $5,000 to remove the present equipment and revamp its facilities
If anyone can offer any type of significant help to me, or better yet get me on the right track, I would greatly appreciate it! I've enclosed my problem down below and additional details are in the excel document. I'm having a hard time distinguishing what is meant by internal funds and if the numbers I'm obtaining are corre
Martinez Company has money available for investment and is considering two projects each costing $70,000. Each project has a useful life of 3 years and no salvage value. The investment cash flows follow: Project A Project B Year 1 $ 8,000 $28,000 Year 2 24,000 28,000 Year 3 52,000 28,000 Instructions If 8% is an accept
You've been hired fresh off your Augsburg MBA as a financial consultant to the Mayo Clinic (MC), a new, for-profit, publicly traded firm that is the market leader in kidney dialysis systems (KDSs). The company is looking at setting up a manufacturing plant overseas to produce a new line of KDSs. This will be a five year project.
Hagar Industrial Systems Company is trying to decide between two different conveyor belt systems. System A costs $430,000, has a four-year life, and requires $120,000 in pretax annual operating costs. System B costs $540,000, has a six-year life, and requires $80,000 in pretax annual operating costs. Both systems are to be de
Raphael Restaurant is considering the purchase of a $10,000 souffle maker. the souffle maker has an economic life of 5 years and will be fully depreciated by the straight-line method. The machine will produce 2000 souffles per year, with each costing $2 to make and priced at $5. Using excel, assume that the discount rate is 1
Your division is considering two projects with the following net cash flow (in millions): Year 0 Year 1 Year 2 Year 3 Project A -$25 $5 $10 $17 Project B -$20
Below is the 2004 year-end balance sheet for Banner, Inc. Sales for 2004 were $1,600,000 and are expected to be $2,000,000 during 2005. In addition, we know that Banner plans to pay $90,000 in 2005 dividends and expects projected net income of 4% of sales. (For consistency with the Answer selections provided, round your forecast
Which of the following statements is most correct? a. If new debt is used to refund old debt, the correct discount rate to use in discounting cash flows is the before-tax cost of new debt. b. The key benefit associated with refunding debt is the reduction in the firm's debt ratio and creation of reserve borrowing capacity
Question 12 (0 points) Diplomat.com is considering a project that has an up-front cost of $3 million and produces an expected cash flow of $500,000 at the end of each of the next five years. The project's cost of capital is 10 percent. Based on this information what is the project's net present value? a. -$ 875,203 b.
Compare two alternatives for equipment purchases using capital budgeting techniques. To be honest, I don't even know where to start with this problem and would appreciate any help that you feel is allowed. At least something that could get me started and allow me to check my work when finished. Thank you for your help.
INPUT OUT PUT 55000 Current salary Current job Calculate and show formulas 40 Years until retirement After Income 0.03 Salary increase 0.26 Tax rate Present value of salary Wilton Wilton MBA 65000 Tuition per year PV of tuition & expenses 2500 Books & Supplies 100000 St
I need to identify the ROI and NPV of the wireless order-tracking system. Here is the information I have been given: - The acquisition cost is $35,000 paid at the time of installation. - It reduces the wait staff by one person: Figure $10 per hour, or 2020 hours per year + 18% Benefits: - Money costs are 7% - The sys
1. In your own words, explain the concept of cost of capital. How may cost of capital affect long-term financial decisions? Would a company prefer to have a high or low cost of capital? Why? What was the effect of cost of capital on long-term financial decisions for your company? 2. Why is capital budgeting part of a compan
1. NPV of granting credit- A credit sale of $15,000 has a 95% probability of being repaid in two months and a 5 % probability of complete default. If the investment in the sale is $12,000 and the opportunity cost of the funds is 15% per year. What is the NPV of granting credit?
Work out the NPVs of the following. Indicate which projects should be undertaken: (i) A project with an outflow of $100,000 in year 0 followed by inflows of $75,000 in years 1 and 2. Use a discount rate of 12%. (ii) A project with an outflow of $50,000 in year 0 followed by an inflow of $100,000 in year 5. Use a discoun
The Net Present Value of a Stream of Cash Flow 11. You have been offered a unique investment opportunity. If you invest $10,000 today, you will receive $500 one year from now, $1500 two years from now, and $10,000 ten years from now. a) What is the NPV of the opportunity if the interest rate is 6% per year? Should you
Impressions Company is a medium sized commercial printer of promotional advertising brochures, booklets, and other direct mail pieces. The firm's major clients are ad agencies based in New York and Chicago. The typical job is characterized by high quality and production runs of more than 50,000 units. Impressions Co has not been
12. Marian Plunket owns her own business and is considering an investment. If she undertakes the investment, it will pay $4000 at the end of each of the next three years. The opportunity requires an initial investment of 1000 plus an additional investment at the end of the second year of $5000. What is the NPV of this oppor
Please see attached sheet for complete list of questions and details. Year Investment X Investment Y 1 $1,000 $1,300 2 800 2,800 3 700 100 4 1,900 5 2,000 a. Under the payback method, which investment should be chosen? (Show your work/analysis/calculations for each investment).
How accurate do you think a company's estimates of the net present value of a proposed project are? Refer to both the initial investment and to the components of the cash flow: revenues, operating expenses, depreciation, taxes, and the cost of capital to use for the computation of the present value. Keep in mind that NPV is t
1. Wheel Industries is considering a three year expansion project. The project requires an initial investment of $1.5 million. The project will use straight line depreciation method. The project has no salvage value. It is estimated that the project will generate additional revenues of $1.2 million and has costs of $600,000
An entrepreneur develops a business plan that requires an initial investment of $2,200 million with a further investment of $2,200 million each year on an ongoing basis. Investment is expected to yield sales revenue equal to 70 percent of the investment in each of the two years following the investment. Accounting rules require