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Net Present Value (NPV)

Should you invest?

You have the opportunity to make an investment of $900,000. If you make this investment, you make $12,000, $250,000 and $800,000 one, two and three years from today, respectively. The discount rate is 12% a) Should you make this investment? b) What is the NPV (net present value) of this opportunity? c) If the discount rat

Compute net present value

Capital Cost Allowance and Present Values The president of a software company is contemplating acquiring some computers used for designing software. The computers will cost $150,000 cash and will have zero terminal salvage value. The recovery period and useful life are both three years. Annual pre-tax case savings from op

Net present value

Which is the net present value of a project that contributes $5,000 at the end of the first year and $8,000 at the end of the second year. The initial cost is $3,000. The appropriate interest rate is 8% for the first year and 9% for the second year. what I dont get here is if I have to bring the values to the present or the f

CAPM and Valuation

13. CAPM and Valuation. You are a consultant to a firm evaluating an expansion of its current business. The cash flow forecasts (in millions of dollars) for the project are: Years Cash Flow 0 -100 1-10 + 15 Based on the behavior of the firm's stock, you believe that the beta of the firm is 1.4. Assuming that the rate

A firm is considering two mutually exclusive investments...

A firm is considering two mutually exclusive investments, each with an ititial outlay of 100,000 dollars and an expected life of 3 years. Assume that the firm has a cost of capital of 10 % for each project The 2 investments are of equal risk and have the following cash flows investment A investment B

Taxes: Present Value of the Incremental Benefits

Graphic Systems purchased a computerized measuring device two years ago for $80,000. It falls into the five-year category for MACRS depreciation. The equipment can currently be sold for $28,400. A new piece of equipment will cost $210,000. It also falls into the five-year category for MACRS depreciation. Assume the new equip

Capital Budgeting: New Product Krispie Krinkles

James LaGrande had recently been appointed Controller of the Breakfast Cereals Division of a major food company. One of Jim's first assignments was to prepare the financial analysis for a new cold cereal, Krispie Krinkles. Mr. LaGrande discussed the product with the food lab that had designed it, with the market research departm

Pisa Construction - Investing in a Negative NPV Project

Here is recent financial data on Pisa Construction, Inc. Stock price $40 Market value of firm $400,000 Number of shares 10,000 Earnings per share $4 Book net worth $500,000 Return on investment 2% quarterly. Pisa has not performed spectacularly to date. However, it wishes to issue new shares to

Project Evaluation

Suppose you have been hired as a financial consultant to Defense Electronics, Inc. (DEI), a large, publicly traded firm that is the market share leader in radar detection systems (RDSs). The company is looking at setting up a manufacturing plant overseas to produce a new line of RDSs. This will be a five-year project. The compan

What is the NPV of this project?

You are considering purchasing an apartment building. Once you renovate the apartment building you will rent the apartments. You plan to keep the building for 7 years and then sell it at the end of year 7 for the estimated fare market value. Purchase Price $10,000,00

Fair Oil: Expected NPV if company waits a year to drill

Fair Oil Fair Oil owns a tract of land that may be rich with oil. Fair must decide whether or not to drill on this land. Fair estimates that the project would cost $25 million today (t = 0), and generate positive net cash flows of $10 million a year at the end of each of the next four years (t = 1, 2, 3, and 4). While the com

Capital Budgeting

Oklahoma Instruments Oklahoma Instruments (OI) is considering a project that has an up-front cost of $250,000. The project's subsequent cash flows critically depend on whether its products become the industry standard. There is a 50 percent chance that the products will become the industry standard, in which case the projec

Blair Bookstores: calculate the NPV of the proposed project

Blair Bookstores is thinking about expanding its facilities. In considering the expansion, Blair's finance staff has obtained the following information: The expansion will require the company to purchase today (t = 0) $5 million of equipment. The equipment will be depreciated over the following four years at the following rat

Expanding its operations into a foreign country

Trent Transport, a U.S. based company, is considering expanding its operations into a foreign country. The required investment at Time = 0 is $10 million. The firm forecasts total cash inflows of $4 million per year for 2 years, $6 million for the next two years, and then a possible terminal value of $8 million. In addition, due

Calculating OCF/NPV of Projects

I'm very confused on how to calculate this problem. The formula I have is for OCF: OCF= (P-V) (Q-FC) (1-t) + t (D) I'm not sure what to plug in here and from there I'm missing the formula for NPV. Please help me. A project aims to supply Detroit with 50,000 tons of machine screws annually for automobile production. You wil

Payback and NPV

What is the payback period on each of the following projects? project time 0 1 3 4 a -5000 1000 1000 3000 0 b -1000 0 1000 2000 3000 c -5000 1000 1000 3000 5000 Given that you wish to use the payback rule with a cutoff period

Risk adjusted discount rate will equate the NPV or both projects

A business is considering an investment in one of two mutually exclusive projects. The discount rate used for Project A is 12%. Futher, Project A cost 15K and it would be depreciated using MACRS. It is expected to have an after-tax salvage value of 5K at the end of 6 years and to produce after-tax cash flows (including a depr

Present Value Calculation Point of View

The Moon Company is contemplating the purchase of a new machine to replace an old machine. The following data are available concerning this investment possibility: New machine: Purchase price now $50,000 Annual cash operating costs $20,000 Useful life 7 years Salvage value at the end of seven years . $ 3,000 O

Capital Budgeting Problem

A manufacturer of electronic components in the 34% marginal tax bracket, is considering the purchase of a new fully automated machine to replace an older manually operated one. The machine being replaced now five years old, and originally had an expected life of 10 years, was being depreciated using the simplified straight line

CASH FLOWS AND NPV

Johnny's Lunches is considering purchasing a new, energy-efficient grill. The grill will cost $20,000 and will be depreciated in an asset class which carries a CCA rate of 30 percent. It will be sold for scrap metal after 3 years for $5,000. The grill will have no effect on revenues but will save Johnny's $10,000 in energy expen

Present value

The present worth of $5,000 in year 3, $10,000 in year 5, and $10,000 in year 8 at an interest rate of 12% per year is closest to? a. 12,100 b. 13,300 c. 14,900 d. 16,200

Capital Budgeting

Vulture Partners, a private equity organization specializing in distressed company investing, was interested in purchasing a company called Turnaround. Mr. Fang, a general partner at Vulture, made the following projections to value Turnaround ($mm): Year 1 Year 2 Year 3 Year 4 Year 5 Revenue 200 210 220 230 240 Costs

Capital budgeting criteria

Please discuss the following three questions. 1. Which decision-making criteria is the best to use for capital budgeting decisions? Why? 2. How can risk be addressed in the capital budgeting process? 3. When is it preferable to lease, as opposed to purchase, capital assets?

Compute and analyze financial equations

I'm stuck on calculating the Discounted Payback Period and Modified Internal Rate of Return. Would you please figure them for me? The problem is: Your Company is thinking of acquiring another corporation.You have two choices; the cost of each choice is $250,000. You cannot spend more than that, so acquiring both corporations is

Financial management - operating cash flow, Breakeven quantity, EPS

1. Operating cash flow - Eisenhower Communications is trying to estimate the first-year operating cash flow (at T=1) for a proposed project. The financial staff has collected the following information: Projected sales $10 million Operating costs (excluding depreciation) 7 million Depreciation 2 million I

1-2 page requirement-Management Accounting -Horngren

Deliverable Length: 1-2 pages Deer Valley Lodge, a ski resort in the Wasatch Mountains of Utah, has plans to eventually add five new chairlifts. Suppose that one lift costs $2 million, and preparing the slope and installing the lift costs another $1.3 million. The lift will allow 300 additional skiers on the slopes, but there a