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# Net Present Value (NPV)

### Decisions Regarding Capital Budgeting

Galaxy Satellite Co. is attempting to select the best group of independent projects competing for the firm's fixed capital budget of \$10,000,000. Any unused portion of this budget will earn less than its 20 percent cost of capital. A summary of key data about the proposed projects follows. (a) Use the NPV approach to select t

### Net Present Value (NPV) Calculation

What is the Net Present Value (NPV) of an investment project with an initial cost of \$6 million and positive cash flows of \$1.6 million at the end of the year 1, \$2.4 million at the end of year 2, and \$2.8 million at the end of year 3. Use 10% as the discount rate.

### NPV question

A project has annual cash flows of \$7500 for the next 10 years and then \$10,000 each year for the following 10 years. The IRR of this 20-years project is 10.98%. if the firm's WACC is 9%, what is the project's NPV?

### NPV, Equivalent Annual Cash Flow Calculations

Consider the following projects: Cash Flows, \$ Project C0 C1 C2 C3 C4 C5 A -1,200 +1,200 0 0 0 0 B -2,400 +1,200 +1,200 +4,200 +1,200 +1,200 C -3,000 +1,200 +1,200 0 +1,200 +1,200 ________________________________

### Studying the Effect of the Depreciation Method on NPV

Wendy's boss wants to use straight-line depreciation for the new expansion project because he said it will give higher net income in earlier years and give him a larger bonus. The project will last 4 years and requires\$1,700,000 of equipment. The company could either straight line or the 3-year MACRS accelerated method. Under

### Sensitivity Analysis of NPV

See the attached file. Sensitivity Analysis is an analysis of a change in NPV when a key input variable is changed and all other variables stay the same. Key variables can change a NPV (return) of a project. The graphing of this data indicates the degree of risk of each variable to the analysis. Take the information an

### Solve: Preparing Budgets

Let's take a look at budgets. If anything, a budget is simply a report of expected results over a period. These can be operational, financial, or strategic. You are an individual within the finance area of your company, and you are preparing final budgets to present to your board of directors for the coming year. You have bee

### NPV, IRR, MIRR, Profitability Index, Payback, Discounted Payback,

(10-1) NPV A project has an initial cost of \$40,000, expected net cash inflows of \$9,000 per year for 7 years, and a cost of capital of 11%. What is the project's NPV (Hint: Begin by constructing a time line.) (10-2) IRR Refer to Problem 10-1. What is the Project's IRR? (10-3) MIRR Refer to Problem 10-1 What is t

### Eddison Electronics Co (EEC) NPV, IRR, Payback & Memo to President

EEC's president announced that one of its largest suppliers is open to being acquired. Analyze the feasibility of acquiring this supplier using net present value (NPV), internal rate of return (IRR), and payback methods. The following assumptions are the best knowledge at this time: 1. EEC will save \$500,000 annually for

### Introduction to Corporate Finance

A company is considering building a new and improved production facility for one of its existing products. It would be built on a piece of vacant land that the firm owns. This land was acquired four years ago at a cost of \$500,000; it has a current market value of \$800,000. The building can be erected for \$600,000. Machinery (eq

### Evaluating cost and benefit for a capital budgeting decision

Capital Budgeting Sky View Resorts, Inc. (SVR) SVR owns and operates a resort lodge in Western Maryland. The BOD is considering the replacement of the seven years old HVAC system with a newer and more energy efficient system. The decision has been accelerated since the US Congress has approved tax incentives for business

### Knowing the Price per Share to Pay When Acquiring Target Firms

See the attached file. It's January 2013 and Han Solo Enterprises is considering an acquisition of Princess Leia Inc., a large private company headquartered in Orlando, Florida. As part of the process of evaluating the acquisition, your boss at Han Solo Enterprises, Lando Calrissian, has asked you to perform a valuation of Pr

### Dog Up! Franks NPV

Dog Up! Franks is looking at a new sausage system costing \$515,000, depreciated using straight line method over five years with a \$77,000 salvage value. The sausage system will save \$195,000 annually in pretax operating costs, and the project requires an initial working capital of \$36,000.. If the tax rate is 35 percent and the

### Operating Costs, Investments, Depreciable Setup Costs

Molecugen has developed a new kind of cardiac diagnostic unit. Owing to the highly competitive nature of the market, the sales department forecasts demand of 5,000 units in the first year and a decrease in demand 10% a year after that. After 5 years, the project will be discontinued with no salvage value. The marketing departmen

### Calculating the NPV and IRR

MOMO-FastCopy considers replacing its park of copiers. The management anticipate that new machines will lead to more economic use of raw materials, reduced labor costs, and increased revenues. The firm estimates that the installation of machines will save \$50,000 on raw materials and \$75,000 on reduced labor costs and will incre

### Doughboy Bakery

Doughboy Bakery would like to buy a new machine for putting icing and other toppings on pastries. These are now put on by hand. The machine that the bakery is considering costs \$81,000 new. It would last the bakery for nine years but would require a \$6,000 overhaul at the end of the fifth year. After nine years, the machine coul

### Net Price Value

1. What is the present value of \$25,000 that you will receive at the end of two years with a discount rate of 5.6%? PV=C_2/(1+r_2 )^2 =25,000/(1+(0.056)^2 )=\$22,000.14 So I think that I've got the right answer to this one, which should be 22,000.14? If I'm incorrect please guide me to the correct answer. 2. What is the

### MACRS and Present Value

The general manager of a mining company has a chance to purchase a new drill at a total cost of \$250000. recovery period is 5 years. Additional annual pretax cash inflow from operations is \$82000. economic life of drill 5 years with no salvage value. tax rate is 35% and the after tax required rate of return is 16%. 1.Compute th

### Net Present Volume, Mergers and Acquisitions

Part I: Net Present Value (NPV) method is one of the most important methods used to make capital budgeting decisions by almost every company. NPV method is important because it helps financial managers maximize shareholders' wealth by making better capital budgeting decisions. Suppose Micron Technology (NasdaqGS: MU - http

### Evaluating Methods for Providing Home Health Service

Capitol Healthplans Inc. is evaluating two different methods for providing home health services to its members. Both methods involve contracting out for services and the health outcomes and revenues are not affected by the method chosen. Therefore, the incremental cash flows for the decision are all outflows. Here are the projec

### Net Present Value in Health Care Organizations

Capitol Healthplans, Inc., is evaluating two different methods for providing home health services to its members. Both methoeds involve contracting out for services, and the health outcomes and revenues are not affected by the method chosen. Therefore, the incremental cash flows for the decision are all outflows. here are the pr

### evaluaing the attractiveness of a potential project

JP Products, Inc. has gathered data to evaluate the attractiveness of a potential project. The company knows the cash flows expected under different scenarios. It has conducted a focus group that ranks various product attributes, and it has the ranking of various marketing techniques provided by a consulting company. What met

### NPV & Inventory

5.The following data have been collected by capital budgeting analysts at Rykers concerning an investment in an expansion of the company's product line. Analysts estimate that an investment of \$210,000 will be required to initiate the project at the beginning of 2010. Estimated cash returns from the new product line are summariz

### Net Present Volume (NPV) Calculations

Require assistance calculating NPV: The following data have been collected by capital budgeting analysts at Home Grown concerning an investment in an expansion of the company's product line. Analysts estimate that an investment of \$210,000 will be required to initiate the project at the beginning of 2010. Estimated cash retur

### Net Present Value and Payback Period of an Opportunity

Leona Rosato just won a lottery and received a cash award of \$400,000 net of tax. She is 61 years old and would like to retire in four years. Weighing this important fact, she was found two possible investments, both of which require an immediate cash payment of \$ 320,000. The expected cash inflows from the two investments oppor

### MARR of mutually exclusive alternatives

Following are the cash flows and a MARR of five mutually exclusive alternatives (only one can be chosen). MARR = 14% Year 0 1 2 3 4 5 Alternative A (\$3,000) \$500 \$750 \$1,100 \$1,500 \$1,200 Alternative B (\$5,700) \$1,100 \$1,500 \$2,000 \$2,5

### Using NPV When Considering Alternatives for Retirement

8. The owner of the krusty krab is considering selling his restaurant and retiring . An investor has offered to buy the Krusty krab for \$ 350.000 whenever the owner is ready for retirement. The owner is considering the following three alternatives: 1. Sell the restaurant now and retire. 2. Hire someone to manage the restaura

### Free Cash Flow & Project Valuation

Case Study: Free Cash Flow & Project Valuation Company "A" is considering the launch of a new product. The company currently uses 35% tax bracket with 15% discount rate. Expected duration of the project is five years, then terminated. See information as follows: Cost of new plant & equip: \$7,900,000 Shipping and Install

### Quaker Oats annual report

Quaker Oats. In its annual report, the Quaker Oats Company discloses following: Financial objectives: provide total shareholder returns (Dividends plus share price appreciation) that exceed both the cost of equity and the S&P500 stock index over time. Quaker's total returns to shareholders for year 11 was 34%. That compares

### How Companies Choose Investment Options

1. Please help to find out how companies (any one) chose investment options (for example investment appraisal) & undertake their budgeting procedure. 2. Research different types of budgets, giving example from real business.