1) A firm is considering investing $10 million today to start a new product line. The future of the project is unclear however and depends on the state of the economy. The project will last 5 years. The yearly cash flows for the project are shown below for the different states of the economy. What is the expected NPV for the pro
Projects SS and LL have the following cash flows: WACC = r = 10% 0 1 2 3 SS -700 500 300 100 LL -700 100 300 600 If a 10% cost of capital is appropriate for both of them, what are their NPVs? See attached.
Sherry Bishop of Thayer Industries is considering investing in a capital project that costs $1.2 million. The project is expected to generate after-tax operating cash flows equal to $500,000 in the first year and declining by $100,000 per year until the end of the project's life in five years. Assume that Thayer's nominal discou
1. Using the demand and price estimates in Exhibits 1 and 2, develop annual revenue projections for the Mesa Verde project. 2. Using the information in the case, develop estimates of the cost of goods sold for each SK.U, operating costs, and depreciation expense for the Mesa Verde plant for each of the next six years. 3. A
You and your friends have decided to examine the potential of starting a series of restaurants in and around college campuses in Boston that cater exclusively to students. Assume that (together) you have $120,000 (equity) for this project which requires an initial investment of $200,000. The remaining amount of $ 80,000 can be r
1. Batesville Manufacturing is considering a capital investment that will provide cash flows of $1,000 a year for 20 years. The payments are spread across the year in daily payments rather than being made at year-end. The effective annual required return is 12%. What is the present value of these benefits: What would be the pres
P8-1. Suppose that a thirty-year Treasury bond offers a 4% coupon rate, paid semiannually. The market price of the bond is $1,000, equal to its par value. c. What is the discounted payback period for the bond, assuming its 4% coupon rate is the required return? What general principle does this example illustrate regarding a p
AOL is considering two proposals to overhaul its network infrastructure. They have received two bids. The first bid, from Huawei, will require a $23 million upfront investment and will generate $20 million in savings for AOL each year for the next three years. The second bid, from Cisco, requires a $91 million upfront investment
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
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.
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?
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 ________________________________
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
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
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
(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
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
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
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 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
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
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 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
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
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
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
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
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
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
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