Explore BrainMass

Net Present Value (NPV)

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

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

NPV, Shares, Income

1) Chapter 3 (Brealey) Practice Question 4 (page 53) A machine costs $380,000 and is expected to produce the following cash flows: Year 1 2 3 4 5 6 7 8 9 10 Cash flow 50 57 75 80 85 92 92 80 68 50 ($000s) If the cost of capital is 12 percent, what is the machine's NPV ?

Calculate the Certainty Equivalent Cash Flows and NPV

Scenario: The Board liked an analysis you did on valuation and agreed to proceed with the expansion plan. Your CFO, investment bankers, and consultants have all been working on the cost and benefits of various expansion options. They have agreed on an option that will see simultaneous expansion into 5 domestic markets (Chicag

Calculate NPV and Apply Black-Scholes Model

Need help calculating the NPV and applying Black-Scholes model to estimate value of option. Please explain how to complete each step and calculate the answers. Kim Hotels is interested in developing a new hotel in Seoul. The company estimates that the hotel would require an initial investment of $20 million. Kim expects th

Net Present Value of a City's Refunding

The City of Charleston issued $3,000,000 of 8% coupon, 30-year, semiannual payment, tax-exempt muni bonds 10 years ago. The bonds had 10 years of call protection, but now the bonds can be called if the city chooses to do so. The call premium would be 6% of the face amount. New 20-year, 6%, semiannual payment bonds can be sold

Net Value

A project has an upfront cost of $21,300,000. It's estimated that the project will produce the following net cash flows: Year Project Net Cash Flows 1 $13,000,000 2 $3,000,000 3 $7,200,000 a) What's the project's net present value when the cost of capital is 4%? b) What's the project's net present value when the cost

Mr. Rambo, President of Assault Weapons, Inc.

Mr. Rambo, President of Assault Weapons, Inc., was pleased to hear that he had three offers from major defense companies for his latest missile firing automatic ejector. He will use a discount rate of 12 percent to evaluate each offer. Offer 1 $500,000 now plus $120,000 from the end of year 6 through 15. Also, if the prod

Excel Work

*Please show all work, use excel and identify the value and units measured. (Notes for my own Use: Ch2: Case Study) I. Please read the case study below, "Racketball Racket" and then prepare for building a model in excel by answering the following 8 easy questions: 1. Explore the mess by answering the following questio

Project NPV Scenario Analysis

Scenario Analysis. The most likely outcomes for a particular project are estimated as follows : Unit price: $50 Variable cost: $30 Fixed cost: $300,000 Expected sales: 30,000 units per year However, you recognize that some of these estimates are subject to error. Suppose that each variable may turn out to be either 10 p

IRR calculations and NPV

Make a spreadsheet document that contains the IRR calculations. Clearly label each diagram to identify the investment name and type of asset Show the original equation you are using Clearly identify a value for each variable in the equation Then, in a Microsoft Word document, prepare a summary report (300 words or le

MBA 540 Valuation Exercise

The terminal value is going to be a large number but please keep in mind you need to calculate the present value of the terminal value. As far as net present value is concerned, please refer to Excel Help section per "NPV" function. If you would like to use a formula, then use the following: PV = Cash Flow at n th yea