Share
Explore BrainMass

Net Present Value (NPV)

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

NPV

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

PLEASE PROVIDE ANSWER AND EXPLANATION IN WORD FORMAT

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

Kinsgsley Products Ltd - Alternative company choice

Kinsgsley Products Ltd, is using a model 400 shaping machine to make one of its products. The company is expecting to have a large increase in demand for the product and is anxious to expand its productive capacity. Two possibilities are under consideration: Alternative 1: Purchase another model 400 shaping machine to operate

Net Present Value

We are developing a new software system for one of our clients. The system has an up-front cost of $75 million (at t = 0). We have forecasted their inventory levels for the next five years as shown below: Year Inventory 1 $1.0 billion 2 1.2 billion 3 1.6 billion 4 2.0 billion 5 2.2 billion We forecast that its new s

Net Present Value using MACRS Depreciation method

Company A is considering a major expansion of its business. The details of the proposed expansion project are summarized below: ? The company will have to purchase $500,000 in equipment at t = 0. This is the depreciable cost. ? The project has an economic life of four years. ? The cost can be depreciated on a MACRS 3-ye

NPV of a project

Can you help me with this assignment? Returns on the market and Company Y's stock during the last 3 years are shown below: Year Market Company Y 2002 -24% -22% 2003 10 13 2004

Calculating NPV

Overview of Big Crick River Site The proposed Big Crick River site is located .23 miles due west of the intersection of Bronco Road and Route 180 in the southwest corner of Johnson County. The Big Crick River is a strong-flowing, medium-sized river that is approximately a quarter-mile wide at the proposed project site. At this

NPV of cash flows

The State Power and Electricity Commission has branch offices in two country towns, Rundown and Brokendown. As well as providing customer account payment services, the offices also serve as bases for technicians who do repair and maintenance work on power lines and equipment in the area. The Commission is considering closin

Australian manufacturing company present value of quality control system

An Australian manufacturing company with all shareholders located in the Ivory Coast, a country located off the mainland of Africa. The financial manager is currently in the process of evaluating two types of quality control systems for installation in the company's manufacturing plant. The company is all equity financed, wi

Payback Method and Net Present Value Method

Dino Corporation is trying to decide which of five investment opportunities it should undertake. The company's cost of capital is 16%. Owing to a cash shortage, the company has a policy that it will not undertake any investment unless it has a payback period of less than three years. The company is unwilling to undertake more th

Efficiency of a System & Equipment Purchase

* The Academic Computing Center has five trainers available in its computer labs to provide training sessions to students. Assume that the capacity of the system is 1900 students per semester and the utilization is 90%. If the number of students who actually got their orientation session is 1500, what is the efficiency of the