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Net Present Value (NPV)

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

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

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


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