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Net Present Value (NPV)

Business Calculations for an Auto Parts Distributing Business

Question: In order to expand its business, Auto Parts Distributing, Inc., is considering the purchase of 10 pickup trucks at a total cost of $150,000. The company expects to keep these trucks for four years, then sell them. The company expects these trucks to generate a net cash flow of $75,000 in year 1, $70,000 in year 2, $65,

Capital budgeting, cost of capital, issuing bonds, dividend

CORPORATE FINANCE. Eighth edition from: Ross. Westerfield. And Jaffe. ISBN 978-0-07-310590-1 MHID 0-07-310590-2 Part of ISBN 978-0-07-333718-0 MHID 0-07-333718-8 Please answer each of the following questions using the short answer format. The ideal responses for each question will be free of writing errors and mus

Calculating NPV of a Project for Humboldt Inc

Humboldt Inc. is considering a project that has the following cash flow and WACC data. What is the project's NPV? Note that if a project's projected NPV is negative, it should be rejected. WACC: 9% Year: 0 1 2 3 4 5 Cash flow -$1000 $300 $300 $300

Edmondson Electric Systems NPV

Edmondson Electric Systems is considering a project that has the following cash flow and WACC data. What is the project's NPV? Note that if a project's projected NPV is negative, it should be rejected. WACC: 10% Year: 0 1 2 3 Cash Flow -$1,000 $500 $500 $500

NPV Method and Cash Flow Estimation

Please help answer the following problems. 1. The Payback period and the IRR methods are inferior to the NPV method, but firms still use these methods. Provide a rationale for this inconsistency. Why are they inferior to the NPV method? 2. Discuss some problems associated with cash flow estimation for a project.

NPV of Mutually Exclusive Projects

As the director of capital budgeting for ABC Corporation, you are evaluating two mutually exclusive projects with the following net cash flows: A B -200,000 -125,000 1 65,000 60,000 2 60,000 40,000 3 50,000 40,000 4 65,000 35,000 5 50,000

Implication of coefficient of variation

From the below solution, tell me what the coefficient of variation implies? And would you accept this project or not? Why? The expected NPV is E(NPV)= sigma Prob*NPV = 0.05*(-70) + 0.20*(-25) + 0.50*12 + 0.20*20 + 0.05*30 = 3 (million) The variance of NPV is VAR = sigma Prob*[NPV -E(NPV)]^2 = 0.05*(-70-3)^2 + 0.

Calculating NPV and maximum return

P9-8 NPV and maximum return. A firm can purchase a fixed asset for a $13,000 initial investment. The asset generates an annual after-tax cash inflow of $4,000 for 4 years. a. Determine the net present value (NPV) of the asset, assuming that the firm has a 10% cost of capital. Is the project acceptable? b. Determine th

Determining NPV and Maximum Required Rate of Return

A firm can purchase a fixed asset for a $13,000 initial investment. The asset generates an annual after-tax cash inflow of $4,000 for 4 years. a. Determine the net present value (NPV) of the asset, assuming that the firm has a 10% cost of capital. Is the project acceptable? b. Determine the maximum required rate of return (

Financial Breakeven and IRR

Using the second case study in the attachment I have a few questions: Using the base case estimates calculate the cash, accounting, and financial breakeven of teh Lazy Mower Project. Interpret each one. Let's say the company had spent $500,000 in developing the prototype of the Lazy Mower. How should Dan and Ron treat th

The Jackson Company new machine: PVB, PVC, NPV

The Jackson Company is considering the purchase of a new machine that is expected to reduce cash outflows. The cost of this machine is $29,000. The annual reduction in cash outflows is as follows: See attached doc. If the cost of capital is 10%, please calculate the following: - A. The Present Value of the Benefits (PVB)

Mutually exclusive projects - NPV

Two mutually exclusive projects, each require an up front expenditure of $30 million. The cost of capital is 10%. The investments will produce the following net cash flows. Year Project A Project B 0 -30,000,000 -30,000,000 1 10,000,000 15,000,000 2 15,000,000 15,000,000 3 15,000,000 20,000,000 4 5,000,000 -5

Risk Management: NPV of Implementing New Policies

Your firm faces a 9% chance of a potential loss of $10 million next year. If your firm implements new policies, it can reduce the chance of this loss to 4%, but these new policies have an upfront cost of $100,000. Suppose the beta of the loss is 0, and the risk-free interest is 5%. a. If the firm is uninsured, what is the N

Jones Delivery: Compare two investment alternatives using NPV.

Jones Delivery is a small company that transports business packages between San Francisco and Los Angeles. It operates a fleet of small vans that move packages to and from a central depot within each city and uses a common carrier to deliver the packages between the depots in the two cities. Jones delivery recently acquired ap

NPV Bond GSB CorpFin Inc

GSB CorpFin Inc. is considering issuing debt to finance its expansion in a strategic consulting division. Detailed analysis by the firm shows that an initial investment needed is $100mln and the present value of cash flows from this expansion (excluding the initial investment) is $500mln. $100mln is a fixed cost and the investme

Considering expanding operation

You are a manger at Percolated Fiber, which is considering expanding its operation in synthetic fiber manufacturing. Your boss comes into your office, drops a consultant's report on your desk, and complains, We owe these consultants $1 million for this report and I am not sure their analysis makes sense. Before we spend the $

Cost of Capital, Payback Periods, and Incremental Earnings

Fast Track Bikes is thinking of developing a new composite road bike. Development will take six years and the cost is $200,000 per year. Once in production, the bike is expected to make $300,000 per year for 10 years. 1. Assuming the cost of capital is 10%, calculate the NPV of this investment opportunity. Should the compan

NPV

Focus on the analysis of different alternatives available to Guillermo. 1. Calculate NPV of future cash flows for each of the alternatives.

Calculating a Project's Net Present Value

Q. Company A wants a new business. The start up costs are $23 million. The business is expected to get a net income of $2.35 million per year for 13 years. The company uses straight line depreciation to zero salvage value for tax purposes. Assuming a 10% discount rate, what is the project's NPV?

NPV and Risks

A firm uses a single discount rate to compute the NPV of all its potential capital budgeting projects, even though the projects have a wide range of nondiversifiable risk. The firm then undertakes all these projects that appear to have positive NPVs. Briefly explain why such a firm would tend to become riskier over time.

Finance

A project anticipates net cash flows of $10,000 at the end of year one, with such amount growing at the expected 5% rate of inflation over the subsequent four years. Calculate the real present value of this five-year cash stream if the firm employs a nominal discount rate of 15%. A) $33,522 B) $38,377 C) $43,294 D) $55,

Present Value and Investment

19. Monson Company is considering three investment opportunities with cash flows as described below: Project A: Cash investment now $15,000 Cash inflow at the end of 5 years $21,000 Cash inflow at the end of 8 years $21,000 Project B: Cash investment now $11,000 Annual cash outflow for 5 years $ 3,000

Estimating Net Present Value

General Auto (GA) Corporation is developing a new model of a compact hybrid car. This car is assumed to generate sales for the next five years. GA has gathered information about the following quantities through focus groups with the marketing and engineering departments. Fixed cost of developing the car. This cost is assume

Capital Budgeting problem

See the attachment. thanks ABC is considering purchasing the existing business of a competitor who produces Model X-Ray Superconductors. The life of this product is estimated to be 20-years, after which the assets will be sold. The details of the transaction are as follow: Total purchase price: Company's assets (e.g

Decision-making using Net present value analysis.

Sandy Rose was given two options for receiving her winnings, if she won, from the Reader's Digest sweepstakes. Option A is a payment of $1 million immediately, plus $137,932 per year for the next 29 years. Option B is an immediate payment of $167,000, plus additional payments of $167,000 per year for the next 29 years. Which

Brown Stone Corporation

I need help with the following... Brown Stone Corporation, maker of customized electric guitars is contemplating the investment of $1,000,000 in a new production facility. The economic life of the facility is estimated to be five years at which time the facility will be obsolete and have no salvage value. The firm will use

Finding the NPV of the Investment

The cost of investment $30,000 The estimated annual profit $5,000 for the first year The annual profit increases by 30% annually The useful life of the investment is 5 years The estimated cost of capital 10% Find the net present value of the investment.

Simple, Regular Payback

A company is considering a project which has an up front cost paid today at t=0. The project will generate positive cash flows of 60,000 a year at the end of each of the next five years. The project's NPV is 75,000 and the company WACC is 10 percent. What is the project's simple, regular payback?

Comparing Net Present Value

There are two mutually exclusive projects with the following net cash flows: Project A -200,000 1. 65,000 2. 60,000 3. 50,000 4. 65,000 5. 50,000 Project B -125,000 1.60,000 2.40,000 3.40,000 4.35,000 5.45,000 If the company's cost of capital is 12 percent, which project would you choose?