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Net Present Value (NPV)

Project NPV and Payback Period

I am evaluating the project with cash inflows as shown below. My boss has asked me to calculate the projects NPV. I don't know the projects initial cost, but I have been informed that the project's payback period is 3.5 years If the project's WACC is 9.9% what is its NPV Cashflows CF = 0 CF1 = 500 CF2 = 800 CF3 = 800

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

Expected Rate of Return: NPV of cash flow stream

An investment is expected to pay the following annual cash flows: 0 1: $600 2: $600 3: $800 4: $1200 5: $1500 If the investor thinks the apppropriate interest rate of this investment is 9.3%, what is the net present value of the above cash flow stream? Suppose your are informed that the price of this investment is

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

Calculating Net Income when selling price changes...

I am trying to find the income when selling price changes from $6.00 to $4.50 ------------- Sales 60,000 gallons Variable CGS $150,000 Fixed Cost $40,000 Corporate Cost $110,000 Cost per Ga $5.00 How to calculate income when it was sold for $6.00

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

NPV

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

Business Calculations for an Auto Parts Distributing Business

Question: In order to expand its business, Auto Parts Distributing, Inc., is considering the purchase of 10 pickup trucks at a total cost of $150,000. The company expects to keep these trucks for four years, then sell them. The company expects these trucks to generate a net cash flow of $75,000 in year 1, $70,000 in year 2, $65,

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.

NPV of Mutually Exclusive Projects

As the director of capital budgeting for ABC Corporation, you are evaluating two mutually exclusive projects with the following net cash flows: A B -200,000 -125,000 1 65,000 60,000 2 60,000 40,000 3 50,000 40,000 4 65,000 35,000 5 50,000

Implication of coefficient of variation

From the below solution, tell me what the coefficient of variation implies? And would you accept this project or not? Why? The expected NPV is E(NPV)= sigma Prob*NPV = 0.05*(-70) + 0.20*(-25) + 0.50*12 + 0.20*20 + 0.05*30 = 3 (million) The variance of NPV is VAR = sigma Prob*[NPV -E(NPV)]^2 = 0.05*(-70-3)^2 + 0.

Calculating NPV and maximum return

P9-8 NPV and maximum return. A firm can purchase a fixed asset for a $13,000 initial investment. The asset generates an annual after-tax cash inflow of $4,000 for 4 years. a. Determine the net present value (NPV) of the asset, assuming that the firm has a 10% cost of capital. Is the project acceptable? b. Determine th

Determining NPV and Maximum Required Rate of Return

A firm can purchase a fixed asset for a $13,000 initial investment. The asset generates an annual after-tax cash inflow of $4,000 for 4 years. a. Determine the net present value (NPV) of the asset, assuming that the firm has a 10% cost of capital. Is the project acceptable? b. Determine the maximum required rate of return (

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)

Mutually exclusive projects - NPV

Two mutually exclusive projects, each require an up front expenditure of $30 million. The cost of capital is 10%. The investments will produce the following net cash flows. Year Project A Project B 0 -30,000,000 -30,000,000 1 10,000,000 15,000,000 2 15,000,000 15,000,000 3 15,000,000 20,000,000 4 5,000,000 -5

Risk Management: NPV of Implementing New Policies

Your firm faces a 9% chance of a potential loss of $10 million next year. If your firm implements new policies, it can reduce the chance of this loss to 4%, but these new policies have an upfront cost of $100,000. Suppose the beta of the loss is 0, and the risk-free interest is 5%. a. If the firm is uninsured, what is the N

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

Calculating a Project's Net Present Value

Q. Company A wants a new business. The start up costs are $23 million. The business is expected to get a net income of $2.35 million per year for 13 years. The company uses straight line depreciation to zero salvage value for tax purposes. Assuming a 10% discount rate, what is the project's NPV?

NPV and Risks

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 these projects that appear to have positive NPVs. Briefly explain why such a firm would tend to become riskier over time.

Finance

A project anticipates net cash flows of $10,000 at the end of year one, with such amount growing at the expected 5% rate of inflation over the subsequent four years. Calculate the real present value of this five-year cash stream if the firm employs a nominal discount rate of 15%. A) $33,522 B) $38,377 C) $43,294 D) $55,

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