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Net Present Value (NPV)

Cash Flow Analysis and NPV

Lou Lewis, the president of Lewisville Company has asked you to give him an analysis of the best use of a warehouse the company owns. a. Lewisville Company currently is leasing the warehouse to another company for $5000 per month on a year-to-year basis. b. The warehouse's estimated sales value is $200,000. A commercial Rea

Finance Problems

1. A General Motors bond (face value of $1,000) carries a coupon rate of 8 percent, has 9 years until maturity, and sells at a yield to maturity of 9 percent. a. What interest payments do bondholders receive each year? b. At what price does the bond sell? (Assume annual interest payments.) c. What will happen to the bond pr

Probability of high demand, NPV

1. Whyth Motors has decided to run a marketing test to determine the demand for its LEV. It figures that if the test results are positive, there is an 80% chance the demand will be high and the if the test results are negative, there is a 10% chance the demand will be high. If the chances of a positive test result for Whyth a

Probability problem for NPV

Washington Orchards is considering purchasing a cherry orchard. Once purchased there is a 92% chance that the NPV of the firm will increase by $95 million. Otherwise the NPV of the firm will decrease by $10 million. What is the NPV of the orchard?


The top five executives at Marvel Manufacturing are paid annual bonuses based on predetermined earnings goals. These bonuses can be as much as 500% of salary. As a member of the company's compensation committee, you've been asked to comment on the following proposed changes to the annual bonus plan: Use after-tax income fro

Ojibwas County Jail

Ojibwas County Jail currently has its laundry done by a local dry cleaner at an annual cost of $46,000. It is considering a purchase of washers, dryers, and presses at a total installed cost of $52,000 so that inmates can do the laundry. The county expects savings of $15,000 per year, and it expects the machines to last five yea

DCF techniques to evaluate capital budgeting

D. Bogey, the owner of a nine-hole golf course on the outskirts of a large city, is considering a proposal that the course be illuminated and operated at night. Ms. Bogey purchased the course early last year for $480,000,. Her receipts from operations during the 28-week season were $135,000. Total disbursemets for the year, for

Your company has a new project to be considered...

Your company has a new project to be considered. You are given the following information on the best guess of related outcomes for the project. The cost of developing and market testing the product over the next year is $225 million. If the test is successful, which is expected to be 65%, the company will spend another $800 m

Net present value problem

You own an aluminum extrusion company. Your plant manager has recommended a new extrusion machine be bought for $250,000. He says it will save $65,000 per year in reduced labor costs and reduced aluminum waste. The machine will have a life of 8 years with no salvage value. Your required rate of return is 10%. a. Pl

Insider trading

Generally defined, insider trading is the buying or selling of a company's securities, by corporate officials or others with a fiduciary duty, on the basis of nonpublic information that's supposed to remain confidential. As noted in McLean (see the attached material, page 266) such inside trading is illegal under U.S. securities

NPV finance

Using NPV methodology rank the 4 projects from Most to least desirable for company profits. should any project be avoided? why? Project 1). Requires an initial cash expenditure of $ 50,000, has a 10% cost of capital, and will return 5 years of income flow in the amount of $ 15,000 each year. Project 2). Will require an ini

Scenario analysis and risk-adjusted NPV

Are you going to do the whole problem set for me or just part c and d? Also, can i get the answer in 3 hours? Thanks very much for your help. With the data provided, how can i perform the scenario analysis in excel and how to find the risk-adjusted NPV if the project appears to be more or less risky than an average project

Question about Allied Lemon Juice Project

I am having a problem finding out what the interest rates should be to complete the problem. How do I find the discount rate and the reinvestment rates. I could also use some help on figuring what the system is for determining the payback. TABLE IC11-1. ALLIED'S LEMON JUICE PROJECT (TOTAL COST IN THOUSANDS)

Effects on net working capitol

In identifying changes in net cash flows, which of the following would have the least (if any) effect on net working capitol? a) Making cash purchases of land for a new baseball manufacturing plant b)Allowing your sales staff to make more sales on credit c) Doubling the size of inventory to accommodate new product lines d)

Net Present Value - Human Capital Issues

Your sister is just about to graduate from college and is thinking of going on to grad school. She is only interested in making the present value of her income stream as high as possible, and she can borrow and lend at an interest rate of 5%. (1) If she doesn't go to grad school she can earn $30,000 a year for the next 45 ye

Net Present Value - Lottery Ticket

Imagine that you stumble across a winning lottery ticket whose prize is a million dollars. Your first reaction, no doubt, would be to ask how the prize money will be paid out so that you could compute its present value. (1) Suppose it is to be paid out in 10 installments of $100,000 each. If the interest rate is 5%, what is

NPV and real cost

A company is evaluating two mutually exclusive projects B and C, each having a useful life of 3 years. B requires an immediate capital outlay of £1.2m while C required £1m. In the absence of cost and price inflation, the cash flows shown in the following table would remain constant throughout the life of the each project and a

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