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Net Present Value (NPV)

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

Evaluating the proposed purchase of a truck for your company - net investment in the truck, operating cash flow, total value of terminal year non-operating cash flows, and NPV of truck.

I'm getting ready to start a Finance class. I'm reading ahead in the book to try and prepare myself for the course. I have a 4.0 GPA and really want to maintain it through graduation; however, this finance book seems like it is pretty daunting! I'm trying to understand these finance concepts and there are a few problems that I w

Questions in Accounting

1. Blinkone Company's material handling costs and kilo of materials for two recent months appear below. Materials Handling Handled Costs January 80,000 kilos $160,000 February 60,000 kilos $132,000 What is the best estimate of the materials handling costs for 75,000 kilos? (Assume that this activi

Capital Budgeting Technique

Use the capital budgeting technique to justify India's alternate investment decisions. Also, support your choice of the discount rate used in the calculation of of NPV...

Net Investment Calculations

A firm is considering an investment of $28 million (purchase price) in new equipment to replace old equipment with a book value of $12 million and a market value of $20 million. If the firm replaces the old equipment with the new equipment, it expects to save $17.5 million in operating costs the first year.The amount of these sa

Your company wants to buy an oil pipeline

Your company wants to buy an oil pipeline which will generate a $2 million in after tax operating cash flow over the coming year. The pipeline oil flow is expected to last for 25 years at which time your company will need to remove the pipeline and repair the land at a cost of $7 million. Your company will need to pay legal and

Net Present Value, Payback, IRR and time value of money

1. Heritage Corp is considering a new machine that will cost $1,000,000. Net cash inflows expected are $125,000 per year for 20 years. a. Determine (Simple) Payback b. Determine Internal Rate of Return c. Assuming cost of funds is 8%, determine Net Present Value (NPV) of project, as well as profitability (Benefits to

Interest Rates and NPV

T or F: Interest rates and corporate profits are the most important determinants of stock and market direction. The higher the discount rate used in project analysis the higher the NPV.

The Datum Co Marketing Study

The Datum Co. has recently completed a $200,000, two-year marketing study. Based on the results of the study, Datum has estimated that 6,000 units of its new electro-optical data scanner could be sold annually over the next 8 years, at a price of $8,000 each. Variable costs per unit are $4,400, and fixed costs total $5.4 million

Investments - Payback Period and NPV

You are considering an investment in a project with a life of eight years, an initial outlay $120,000, and annual after-tax cash flows of $52,000. The project also requires an increase in inventories of $22,000. This $22,000 investment in inventory is required at the outset of the project and will be released when the project

Evaluating a Milling Machine Proposal

You must evaluate a proposal to buy a new milling machine. The base price is $108,000, and shipping and installation costs would add another $12,500. The machine falls into the MACRS 3-year class, and it would be sold after 3 years for $65,000. The applicable depreciation rates are 33, 45, 15, and 7%. The machine would require

Analysis of Investing Activities

At the end of its most recent fiscal year, Shangri-La Company., owned the following investments: Investment Historical Cost Fair Market Value Company A $650,000 $765,000 Company B $840,000 $730,000 Other Shangri-La assets: Book Value: $2.4 million Other Shangri-La

Capital Budgeting Question for James Company

The James Company is considering investing in a new project. The project's forecasted net cash flows are the following: YEAR PROJECT'S FORECASTED NET CASH FLOW ($) 0 -150,000 1 2,000 2 8,000 3 15,000 4 35,000 5 20,000 6 30,000 7 11,000 8 14,000 9 18,000 10 60,000 The project's cost of capital is 11%. Should th

Appraisal Investment

BC plc is considering the introduction of a new breakfast cereal on which it has already spent £50,000 on technical and feasibility studies. The new product will be a variation of our current breakfast cereal, Crunch Stuff, with the exception that it will contain sugar-coated roasted nuts. Consequently, it will be called Crunc

What is the NPV for Real Time Inc.?

Please provide detailed answer in MS Excel file and text file Given the information in the attachment, what is the NPV? The president of Real Time Inc. has asked you to evaluate the proposed acquisition of a new computer. The computer's price is $40,000, and it falls into the MACRS 3-year class. Purchase of the comput

Explaining NPV on Projects

Foreign investments are conventionally assumed to involve additional costs of distance and costs due to unfamiliarity with foreign governments, languages, legal systems, and distribution channels. In a domestic context, positive net present value (NPV) typically originates from economic rents on a firm's competitive advantages,

A Discussion On Net Present Value and Internal Rate of Return

Julie Kowalis, an investment analyst, wants to know if her investments during the past four years have earned at least a 12% return. Four years ago, she had the following investments: 1. She purchased a small building for $50,000 and rented space in it. She received rental income of $8,000 for each of the four years and then