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Net Present Value (NPV)

Cost Accounting

Cost of equipment 50,000 working capital required 30,000 salvage value 0 annual cash inflows 20,000 required rate of return 20% life of project 8 years NPV= A 3730 B 0 C 32,450 D 88,370

Find Net Present Value for investment analyst's investment.

An Investment analyst wants to know if the investments during the past four years have earned at least a 12% return. Four years ago she had the following investments A) 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. The buildi

Net Operating Cash Flow - Acquisition of a New Machine

The Mars Company is evaluating the proposed acquisition of a new machine. The machine's base price is $600,000 plus shipping costs of $20,000. The machine falls into the MACRS 3-year class, and it would be sold after 5 years for $10,000. The machine would require an increase in net working capital of $25,000. The machine would


You have estimated 3 possible NPV outcomes for an investment under analysis, the expected NPV, the best case NPV and the worst case NPV. You have also gotten estimates from management on the probability of each of these three cases. What do you need to do to find the expected NPV for the investment?

Fundamentals of Corporate Finance - NPV

Emperor's Clothes Fashions can invest $5 million in a new plant for producing invisible makeup. The plant has an expected life of 15 years, and expected sales are 6 million jars of makeup a year. Fixed costs are $2 million a year, and variable costs are $1 per jar. The product will be priced at $2 per jar. The plant will be depr

Important information about Deer Valley Lodge

Deer Valley Lodge, has plans to add 5 new chairlifts. Suppose that one lift costs $2 million & preparing the slope & installation is additional $1.3 million. The lift will allow 300 additional skiers but there are only 40 days when the additional capacity is needed.(Assume Deer Park will sell all 300 lift tickets on those 40 d

Simple and Compound Interest; Present and Future Values

Part A: What is the difference between "simple" and "compound" interest? What are some of the uses of compound interest in business? What are some of the effects of using compound interest when evaluating future value transactions and calculations? Part B: Describe the concepts of PV, FV, PV of an annuity, and FV of an annui

Using Rate of Return to Select a Project

Company X is debating a project. The sales are expected to be 15 000 units for each of 5 years after that the machinery will be discarded (assume zero value at that time). The price of the unit might be either $13.50 or $13.70 with equal probabilities. Variable costs are $4.30 per unit and Fixed costs are $49 000 per year. The i

NPV: Which of the statements are correct?

Moynihan Motors has a WACC of 10%. The firm is considering two normal, equally risky, but mutually exclusive projects. Project A has an IRR of 15%, while Project B has an IRR of 20%. Which of the following statements is CORRECT? A. Both projects have a negative NPV. B. Since the projects are mutually exclusiv


What is the NPV of a project that costs $100,000 and returns $45,000 annually for three years if the opportunity cost of capital is 14%?

Net Present Value and Expected Value

Larry's Athletic Lounge is planning an expansion program to increase the sophistication of its exercise equipment. Larry is considering some new equipment priced at $20,000 with an estimated life of five years. Larry is not sure how many members the new equipment will attract, but he estimates his increased yearly cash flows for

ACH Disbursing and NPV

The MC Donald Company can convert to ACH disbursing for $20,000. McDonald averages a perpetual 500 checks per month and has an annual cost of capital of 10%. If ACH disbursing will save McDonald's 20 cents per payment, what is the NPV of the decision to convert to ACH? What is the minimum number of payments per month in order to

Cost of Capital Calculations

I need help in understanding the cost of capital and how to figure it. Calculate the values for each project using the time value table- the cost of capital is 12% 1. NPV 2. IRR 3. Profitability index 4.Payback Period Year Project A Project B 0 $-30,000 $-60,000 1 $ 10,000 $20,000 2 $ 10,000 $20,000 3 $ 10,000 $20,

Present value of investment and cash flow

Crittenden Company is considering two mutually exclusive investments in capital equipment that have a 10% cost of capital. Cash flow information for the two alternatives is below. Investment 1 $Investment 2 Initial investment in equipment $110,000 170,000 Increase in annu

What is the NPV of his trading opportunity each year?

3) Jim Bob is a stock picking genius. Every year, based on his system, he has the ability to invest $100 (only) in a security that is expected to earn a 20% return over the next year. That security always has a beta of one. Assume that the risk free rate is 4%, and the market risk premium is 6%. Assume that Jim Bob organized

Managing Costs and Profitability

Congratulations! Your work on understanding and managing the costs and profitability of Claire's Antiques has resulted in record-breaking sales volume and profits. As a result, senior management is considering two new warehouse locations in order to serve its customers in the North and West more efficiently. Unfortunately, the c

Cost of capital

Your firm is considering the purchase of a machine tool automation system. Which of the following should you choose if your cost of capital is 15%? The life of both alternatives is 5 years. Why? Acme Machine: Cost = $55,000 Maintenance Contract: $12000 annually Baker Machine: Cost $39,000 Maintenance Con

NPV, Payback, Collections,

1. Winter Corporation expects to buy a machine for $126,000, which will be depreciated over an 8 year period on a straight-line basis with no salvage value. The machine is expected to generate a net cash flow of $36,000 per year. What is the payback period? 2. If credit sales are $20,000 in March and $16,000 in April, and i

Parker Products: Net present value of a project for a new detergent.

Parker Products manufactures a variety of household products. The company is considering introducing a new detergent. The company's CFO has collected the following information about the proposed product. (Note: You may or may not need to use all of this information, use only the information that is relevant.) - The project

Investing/Budgeting Review Questions

1. You would like to have $5000 in savings at the end of five years. How much money, in equal amounts, must be invested at the end of each of the next five years in order to achieve your goal? Your current savings balance is $500 and the interest rate you expect to earn over the next five years is 6.5 percent per year. 2. C

Is it worth paying for the test?

Your midrange guess as to the amount of oil in a prospective field is 10 million barrels, but in fact there is a 50 percent chance that the amount of oil is 15 million barrels, and a 50 percent chance of 5 million barrels. If the actual amount of oil is 15 million barrels, the present value of the cash flows will be only


Honda and GM are competing to sell a fleet of 25 cars to Hertz. Hertz fully depreciates all of its rental cars over five years using the straight-line method. The firm expects the fleet of 25 cars to generate $100,000 per year in earnings before taxes and depreciation for five years. Hertz is an all-equity firm in the 34-percen

Sensitivity Analysis of Emperor's Clothes Fashions

Emperor's Clothes Fashions can invest $5 million in a new plant for producing invisible makeup. The plant has an expected life of 5 years, and expected sales are 6 million jars of makeup a year. Fixed costs are $2 million a year, and variable costs are $1 per jar. The product will be priced at $2 per jar. The plant will be depre

NPV and IRR Example

NPV Example ? Pharmaceutical plant costs $50MM today ? Net cash flows: (no benefit until year 2) - Year 2: $9MM - Year 3: $10MM - Year 4: $11MM ? Assume a no-growth perpetuity after Year 4 ? Risk adjusted cost of capita = 14% ? What is NPV? Internal Rate of Return ? IRR is the break-even rate ? At what rate does the