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Net Present Value (NPV)

CAPM, risk-adjusted net present value, simulation

Problem 1 Use CAPM methodology to compute the following: A. Compute a fair rate of return for Intel common stock with a beta of 1.2. The risk free rate is 6% and the NYSE market portfolio has an expected return of 16%. B. Why is the rate you computed a fair rate? Problem 2 The Niagra corporation is considering

NPV Breakeven point in Sales of silver coaster sets

A firm is planning to supply a customer with silver coaster sets. The customer plans to purchase 10,000 sets anually for the next 4 years. The coaster sets will sell for $500 per set. Up front costs associated with this project are $600,000 and will have no value at the end of the project. Variable costs are $375 per coaster set

Rocky Top Car Wash: Project's change in NPV

Rocky Top Car Wash is considering a new project whose data are shown below. The equipment that would be used has a 3-year tax life, would be depreciated by the straight-line method over the project's 3-year life, and would have zero salvage value. No new working capital would be required. Revenues and other operating costs are e

Expected NPV if Inflation Adjustment is Made

Dumpe Industries is analyzing an average-risk project, and the following data have been developed. Unit sales will be constant, but the sales price will increase with inflation. Fixed costs will also be constant, but variable costs will rise with inflation. The project should last for 3 years, and there will be no salvage value.

TexMex Food Company (Products): Finding a Project's NPV

TexMex Products is considering a new salsa whose data are shown below. The equipment that would be used would be depreciated by the straight-line method over its 3-year life, would have zero salvage value, and no new working capital would be required. Revenues and other operating costs are expected to be constant over the projec

Multiple Choice Questions: net float, financial policy, static theory of capital structure, security market line, optimal capital structure, net present value of the project, IPOs and underpricing, preemptive right, earnings per share, cost of equity, financial statement analysis, aftertax income, levered value of the firm, financial leverage, efficient financial markets, operating cash flow

Question 40. A firm writes 300 checks a day for an average amount of $200 each. These checks generally clear the bank in 3 days. In addition, the firm generally receives an average of $70,000 a day in checks which it deposits immediately. Deposited funds are made available in 3 days. What is the fir

Made changes to problem -- some incorrect figures were originally posted

Initial cost $10 million Unit sales 100,000 Selling price per unit this year $50.00 Variable cost per unit, this year $20.00 Life expectancy 10years Salvage value $0 Depreciation - Straight line Tax rate 34% Nominal discount rate 10% Real discount rate 10% Inflation rate 0% 1.Prepare a spreadsheet to estimat

Operating cash flows

1. A project is expected to create operating cash flows of $22,500 a year for three years. The initial cost of the fixed assets is $50,000. These assets will be worthless at the end of the project. An additional $3,000 of net working capital will be required throughout the life of the project. What is the project's net present v

Operating Cash Flows

Please help me out with the following questions. 1- Operating cash flows rather than accounting profits are listed in Table 12- 1. Why do we focus on cash flows as opposed to net income in capital budgeting? 2 Explain why sunk costs should not be included in a capital budgeting analysis, but opportunity costs and extern

NPV annual cash flow

A project requires an initial outlay of $60,000 and is expected to yield an annual cash flow of E(X) = $10,000. The cash flow is a perpetuity. The project's beta is 2, the market portfolio's mean rate of return is E(Rm) = 15%, and the riskless interest rate, r, is 4%. The firm is an all-equity firm. Should the firm accept the

Investment Decisions

Problems: 1). You are a real estate agent thinking of placing a sign advertising your services at a local bus stop. The sign will cost $ 5000 and will be posted for one year. You expect that it will generate additional revenue of $ 500 per month. What is the payback period? 2). Innovation Company is thinking about marketi

Present Value and Investment Decisions

I have attached two excel files with 3 question on each of them. Kindly solve the 6 questions. Thank you ! Mrs. T. Potts, the treasurer of Ideal China, has a problem. The company has just ordered a new kiln for $400,000. Of this sum, $50,000 is described by the supplier as an installation cost. Mrs. Potts does not

NPV and Payback Period

Samara inc is considering a project that would have a ten-year life and would require a $1,500,000 investment in equipment. At the end of ten years the project would terminate and the equipment would have no salvage value. The project would provide net operating income each year as follows: Sales

Calculating NPV - HELP!

Year Project A Project B 0 -7500 -5000 1 4000 2500 2 3500 1200 3 1500 3000 Here's the question - if the payback period cutoff is 2 years, which project should I choose? Also, if I use the NPV rule to rank the projects, which one should I choose if the disc

Multiple choice questions: net after-tax cash effect of operations, cash flow, Accelerated depreciation, depreciation, average tax rate, capital budgeting, present value, required rate of return, adjustment for inflation

Question 31: Robin Company is considering the purchase of a new $80,000 delivery van. The van will have a useful life of 5 years, no terminal salvage value, and tax depreciation will be calculated using the straight-line method. If the van is purchased, the company will be able to increase annual revenues by $90,000 per year for


Western Kansas University is considering replacing some Ricoh copiers with faster copiers purchased from Kodak. The administration is very concerned about the rising costs of operations during the last decade. To convert to Kodak, two operators would have to be retrained. Required training and remodeling would cost $4,000.

Philadelphia Physicians is considering the replacement of an old billing system with new software that should save $5,000 per year in net cash operating costs. The old system has zero disposal value,

Philadelphia Physicians is considering the replacement of an old billing system with new software that should save $5,000 per year in net cash operating costs. The old system has zero disposal value, but it could be used for the next 12 years. The estimated useful life of the new software is 12 years, and it will cost $25,000. T

Risk preference/risk analysis and NPV calculations

Part one 1. Risk preferences Sharon Smith, the financial manager for Barnett Corporation, wishes to evaluate three prospective investments: X, Y, and Z. Currently, the firm earns 12% on its investments, which have a risk index of 6%. The expected return and expected risk of the investments are as follows: Investment Expect

Calculating NPV, Profitability Index and IRR

1.TLC Corp. is considering purchasing one of two new diagnostic machines. Either machine would make it possible for the company to bid on jobs that it currently isn't equipped to do. Estimates regarding each machine are provided below: Machine A Machine B Original Co

Question about Capital Budgeting-NPV

Your firm is looking at a new investment opportunity, Project Alpha, with net cash flows as follows: ---- Net Cash Flows ---- Project Alpha Initial Cost at T-0 (Now) ($10,000) cash inflow at the end of year 1 6,000 cash inflow at the end of year 2 4,000 ca

Value Maximization Decisions

Using the data in the attached income statement, explain the three value maximization decisions. After taking a closer look at the numbers and doing the financial analysis, you begin to think more strategically, and in a broader context, you anticipate what the CFO would ask or what the head of Strategic Planning might want to k

Product Life: Develop a new car, determine minimum number of cars that must sell

You work for an automobile company that is considering developing a new car. The product development cost for this new car will be $500 million per year for 3 years. During the third year of product development, the company will incur $1 billion for manufacturing set up costs. Three years after the start of product developmen

Cash flows of two investments

Consider the following cash flows on two not mutually exclusive investments. Year Investment A Investment B 0 -$100 -$100 1 44 69 2 56 51 3 65 32 The required return is 15%. The investments are not mutually exclusive. a) Calculate the NPV and

Finance problems: NPV, Freddie Industries bond, break even level of output

1-An investment costs 10,000 and offers an annual cash flow of 1770 for 10 years. According to the net present value method of capital budgeting, should the firm make this investment if its cost of capital is 10%? 2-A Freddie Industries $10,000 bond was issued with a 6% coupon rate and will mature in 20 years. Assume that the