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Net Present Value (NPV)

Relevant Information, Net Present Value, and Screen Project

The managers at ABV are considering replacing the industrial lathe used in the company's factor. The company's cost of capital is 12%. Information about lathe: Cost $57,000 Estimated useful life 8 yrs Estimated residual value 0 Current age

Financing the purchase of a plane

The current stock price of Next airlines is $40. If Next issues equity, Next's management anticipates that the market will react negatively and that Next will only be able to sell the new shares for $35 per share. However, Next airlines management knows that if they do not issue equity their stock will soon go up to its fair fun

You have been hired as a consultant for Pristine Urban-Tech Zither, Inc. (PUTZ)

Trying to find the NPV of this project; assuming the company has other profitable projects. You have been hired as a consultant for Pristine Urban-Tech Zither, Inc. (PUTZ), manufacturers of fine zithers. The market for zithers is growing quickly. The company bought some land three years ago for $1 million in anticipation of u

The Yurdone Corp. wants to set up a private cemetery business. If Yurdone requires a 13% return on such undertakings, should the cemetery business be started? The company is somewhat unsure about the assumption of a 6% growth rate in its cash flows. At what constant growth rate would the company just break even if it still required a 13% return on investment?

The Yurdone Corp. wants to set up a private cemetery business. According to the CFO, Barry M. Deep. business is "looking up." As a result, the cemetary project will provide a net cash inflow of $60,000 for the firm during the first year, and the cash flows are projected to grow at a rate of 6% per year forever. The project requi

NPV value of the dollar

Which of the following do you think would give you the most accurate NPV (net present value) calculation, using today's NPV value of the dollar. a.a brand new retail startup b.a pharmaceutical company introducing a new drug c.a company with a successful product in Chile trying to introduce it to the USA. WHY? How do

Project Valuation - ABC is considering building a drilling for water factory.

Please solve manually instead of using Excel. I'm trying to grasp the concepts. ABC is considering building a drilling for water factory. The equipment will cost $625 today, and in one year it will be known whether or not there is water at the site and, therefore, whether the project a success or failure. Engineering estima

Compute the following ratios

Selected comparative statement data for Crimson Tide Products Company are presented below. All balance sheet data are as of December 31. Instructions Compute the following ratios for 2007. 1. Profit margin. 2. Asset turnover. 3. Return on assets. 4. Return on common stockholders' equity.

Break-even analysis Cornchopper Company

Cornchopper Company is considering the purchase of a new harvester. Cornchopper has hired you to determine the break-even purchase price (in terms of present value), of the harvester. This break-even purchase price is the price at which the project's NPV is zero. Base your analysis on the following facts. The new harvester

Project Evaluation using NPV for Kinky Copies

Project Evaluation Kinky Copies may buy a high-volume copier. The machine costs $100,000 and will be depreciated straight line over 5 years to a salvage value of $20,000. Kinky anticipates that the machine actually can be sold in 5 years for $30,000. The machine will save $20,000 a year in labor costs but will require an in

A firm is considering investing $10 million in equipment that is expected to have a useful life of four years and is expected to reduce the firm's labor costs by $4 million per year. What are the investment's IRR and NPV?

2. A firm is considering investing $10 million in equipment that is expected to have a useful life of four years and is expected to reduce the firm's labor costs by $4 million per year. Assume the firm pays a 40% tax rate on accounting profits and uses the straight-line depreciation method. What is the after-tax cash flow from

How does the firm your work for control its agency problem?

How does the firm you work for control its agency problem? In other words, how does your company ensure that your top executives work in the best interest of the firm rather than in their own best interest? How would you change the requirements for your top management's bonus? (I work at a motel as an assistant manager) Do p

Analyzing Cash Flows from Alternatives

Oceanic Boatworks is considering purchasing a new machine for $1 million at the end of Year 0 to be put into operating at the beginning of Year 1. The new machine will save $250,000, before taxes, per year from the cash outflows generated by using the old machine. For tax purposes, Oceanic will depreciate the new machine in the

Common equity, discounting and compounding, negotiated purchase and a competitive bid purchase, cost of capital, financial risk and interest rate risk, expected rate of return, target capital structure, trade credit terms, weighted-average cost of capital

See attachment for more details. Part One -Please provide as much detail and information when answering the questions. 1. Explain what drives a company's return on common equity. 2. The process of discounting and compounding are related. Explain this relationship. 3. What is the major difference between a negotiated p

Net Worth

The changes in net worth for the year ended December 31, 2004, follow: Realized increases in net worth: Salary $60,000 Dividend income $2,500 Interest income $2,000 Gain on sale of marketable securities $500 Realized decrea

Apple has gathered the following data on a proposed investment project

Use the following information to answer questions 20 - 22: Apple has gathered the following data on a proposed investment project: Cost of the Investment $1,200,000 Estimated Salvage Value $0 Annual cost inflows $240,000 Life of the project 10 years Discount rate 10% Calculate the following: 20. What is the payba

City of Apple Net Present Value & System Decisions

1. (Ignore income taxes in this problem) Five years ago, the City of Apple spent $30,000 to purchase a computerized radar system called Green Apples. Recently, a sales rep from Green Apples told the city manager about a new and improved radar system that can be purchased for $50,000. The rep. also told the manager that the com

Calculating the Net Present Value

Linda Johnson is a freshmen at State University. She is considering starting a business in her dorm room that would sell computer supplies such as diskettes and ink cartridges to her fellow students. Gina estimates the business would generate $1,500 in net cash flow each of the next four years. To start the business she would ne

Teddy Bear Planet, Inc

I need to see intermediate steps and formulas. Teddy Bear Planet, Inc., is considering the acquisition of Sesame Street Co. The professionals from Goldman Sachs hired by Teddy Bear figured out that under the proposed plan, the IRR for this acquisition project is 15%. Moreover, assume the basic IRR rule applies here. The T-bi

Security Market Line

The correct opportunity cost for a project is determined to be 15% and the project is expected to generate $1 million in cash flows at the end of the next four years after an initial outlay of $3 million. Based on this information, the project would plot above, below, on, or on the security market line with a beta of 1.0?

Pinkerton Truck Rental

Pinkerton Truck Rental is considering two mutually exclusive engine development projects. The RPX design has an expected life of 4 years and projected cash inflows are $3.6 million at the end of each of the first 2 years and $1.8 million in each of the next 2 years. The RPB design is more flexible and has an 8-year life. The

NPV, Opportunity Cost of Capital and Payoffs

In real life the future health of the economy cannot be reduced to three equally probable states like slump, normal, and boom. But we'll keep that simplification for one more example. Your company has identified to more projects, B and C. Each will require a $5 million outlay immediately. The possible payoffs at year 1, ar

NPV - Swanee Resorts

Swanee Resorts 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 ex


Which of the following statements is correct? a. In a capital budgeting analysis where part of the funds used to finance the project are raised as debt, failure to include interest expense as a cost in the cash flow statement when determining the project's cash flows will lead to an upward bias in the NPV. b. The preceding s