Explore BrainMass
Share

# Net Present Value (NPV)

### Multiple Choice Questions: net float, financial policy, static theory of capital structure, security market line, optimal capital structure, net present value of the project, IPOs and underpricing, preemptive right, earnings per share, cost of equity, financial statement analysis, aftertax income, levered value of the firm, financial leverage, efficient financial markets, operating cash flow

Question 40. A firm writes 300 checks a day for an average amount of \$200 each. These checks generally clear the bank in 3 days. In addition, the firm generally receives an average of \$70,000 a day in checks which it deposits immediately. Deposited funds are made available in 3 days. What is the fir

### Reworking the NPV for a Project Optimistically and Pessimistically

Here is a summary of the cash flows for a project which has recently been submitted to a review committee. Time Period Annual Cash Flow (after taxes) 0 -\$1,600,000 1 600,000 2 600,000 3 400,000 4 400,000 Additional information which applies to

### Made changes to problem -- some incorrect figures were originally posted

Initial cost \$10 million Unit sales 100,000 Selling price per unit this year \$50.00 Variable cost per unit, this year \$20.00 Life expectancy 10years Salvage value \$0 Depreciation - Straight line Tax rate 34% Nominal discount rate 10% Real discount rate 10% Inflation rate 0% 1.Prepare a spreadsheet to estimat

### Operating cash flows

1. A project is expected to create operating cash flows of \$22,500 a year for three years. The initial cost of the fixed assets is \$50,000. These assets will be worthless at the end of the project. An additional \$3,000 of net working capital will be required throughout the life of the project. What is the project's net present v

### Considering Two Investments: Payback and Net Present Value

Company considers two investments both cost 10,000. The cash flows are as follows: Year A Year B 12,000 10,000 8,000 6,000 6,000 16,000. A. Which of the two projects should be chosen based on the payback method? B. Which of the two projects should be chosen based on the net present v

### Superior Manufacturing is thinking of launching a new product.

Details: Superior Manufacturing is thinking of launching a new product. The company expects to sell \$950,000 of the new product in the first year and \$1,500,000 each year thereafter. Direct costs including labor and materials will be 55% of sales. Indirect incremental costs are estimated at \$80,000 a year. The project requir

### Compute the project's net present value, the overhead rate, allocation of costs.

See see the file for the full problems (Ignore income taxes in this problem.) The following data concern an investment project: The working capital will be released for use elsewhere at the conclusion of the project. Required: Compute the project's net present value. Spivey Company has two service departm

### Operating Cash Flows

Please help me out with the following questions. 1- Operating cash flows rather than accounting profits are listed in Table 12- 1. Why do we focus on cash flows as opposed to net income in capital budgeting? 2 Explain why sunk costs should not be included in a capital budgeting analysis, but opportunity costs and extern

### McGregor Whiskey Company

The McGregor Whiskey Company is proposing to market diet scotch. The product will be test-marketed for 2 years in Southern California at an initial cost of \$500,000. This test launch is not expected to produce any profits but should reveal consumer preferences. There is a 60 percent chance that demand will be satisfactory. In th

### Growth Enterprises believes that its latest project, which will cost \$80,000 to install, will generate a perpetual growing stream of cash flows.

Growth Enterprises believes that its latest project, which will cost \$80,000 to install, will generate a perpetual growing stream of cash flows. Cash flow at the end of this year will be \$5,000, and cash flows in future years are expected to grow indefinitely at an annual rate of 5 percent. If the discount rate for this project

### Investment Decisions

Problems: 1). You are a real estate agent thinking of placing a sign advertising your services at a local bus stop. The sign will cost \$ 5000 and will be posted for one year. You expect that it will generate additional revenue of \$ 500 per month. What is the payback period? 2). Innovation Company is thinking about marketi

### Present Value and Investment Decisions

I have attached two excel files with 3 question on each of them. Kindly solve the 6 questions. Thank you ! Mrs. T. Potts, the treasurer of Ideal China, has a problem. The company has just ordered a new kiln for \$400,000. Of this sum, \$50,000 is described by the supplier as an installation cost. Mrs. Potts does not

### Break-Even

Problem 9. (Section five) Break-Even. Dime a Dozen Diamonds makes synthetic diamonds by treating carbon. Each diamond can be sold for \$100. The materials cost for a standard diamond is \$30. The fixed costs incurred each year for factory upkeep and administrative expenses are \$200,000. The machinery costs \$1 million and is depr

### Scenario Analysis - a project that will stock San Antonio with 40000 tons of machine screws every year for auto production

Here's the deal: I'm developing a project that will stock San Antonio with 40000 tons of machine screws every year for auto production. I'll need an initial 1,700,000 dollars in investment money for threading equipment just to get started. The project will last 5 years and the accounting department says that annual fixed cost

### TPV and discount rate

Need help with formula and how the discount rate is calulated in. what is the total present value of 50.00 received in 1 year, 200 received in 2 years and 800 received in 6 years if the discount rate is 8%? I need help understanding the formula and assistance with this example so I ensure i know how to do do discount rate

### Haig Aircraft is considering a project that has an up-front cost

Haig Aircraft is considering a project that has an up-front cost of \$152,447 paid today at t = 0. The project will generate positive cash flows of \$60,000 a year at the end of each of the next five years. The project's NPV is \$75,000 and the company's WACC is 10%. What is the project's regular payback? a. 3.22 years b

### NPV and Payback Period

Samara inc is considering a project that would have a ten-year life and would require a \$1,500,000 investment in equipment. At the end of ten years the project would terminate and the equipment would have no salvage value. The project would provide net operating income each year as follows: Sales

### Finance: budget, contribution margin, WACC, Bernanke, the Fed, liquidity, arbitrage

Questions for Finance 1. What is a cash budget? a. Detailed plan of future cash flows b. Budget that shows only the cash that comes in c. Historical look at cash flows d. Report that analyzes the cash account e. Report that analyzes the accounts receivables 2. If your revenue is \$10 million, your variable cost is \$

A company is considering two mutually exclusive projects (project A and B). The following shows the expected cash flows: Year Project A Project B 0 -30,000 -60,000 1 10,000 20,000 2 10,000 20,000 3 10,000 20,000 4 10,000 20,000 5 10,000 20,000 Cost of capital=14% Using one of the capital budgeting technique

### The law firm of Bushmaster, Cobra and Asp is considering investing in a complete small business computer system. The initial investment will be \$35,000.

The law firm of Bushmaster, Cobra and Asp is considering investing in a complete small business computer system. The initial investment will be \$35,000. The computer is in the 5-year MACRS category, and the firm's tax rate is 34%. The computer system is expected to provide additional revenue of \$15,000 per year for the next six

### Should Golden Corporation purchase the new equipment? What is NPV?

Golden Corporation is considering the purchase of new equipment costing \$200,000. The expected life of the equipment is 10 years. It is expected that the new equipment can generate an increase in net income of \$35,000 per year for the next 10 years. The probabilities for the increase in net income depend on the state of the econ

### Multiple choice questions: net after-tax cash effect of operations, cash flow, Accelerated depreciation, depreciation, average tax rate, capital budgeting, present value, required rate of return, adjustment for inflation

Question 31: Robin Company is considering the purchase of a new \$80,000 delivery van. The van will have a useful life of 5 years, no terminal salvage value, and tax depreciation will be calculated using the straight-line method. If the van is purchased, the company will be able to increase annual revenues by \$90,000 per year for

### Replacement

Western Kansas University is considering replacing some Ricoh copiers with faster copiers purchased from Kodak. The administration is very concerned about the rising costs of operations during the last decade. To convert to Kodak, two operators would have to be retrained. Required training and remodeling would cost \$4,000.

### Philadelphia Physicians is considering the replacement of an old billing system with new software that should save \$5,000 per year in net cash operating costs. The old system has zero disposal value,

Philadelphia Physicians is considering the replacement of an old billing system with new software that should save \$5,000 per year in net cash operating costs. The old system has zero disposal value, but it could be used for the next 12 years. The estimated useful life of the new software is 12 years, and it will cost \$25,000. T

### Net Present Value of an Investment

A manager of the Administrative Computer Center of Olympia State University is contemplating acquiring 120 computers. The computers will cost \$325,000 cash, have zero terminal salvage value, and useful life of three years. Annual cash savings from operations will be \$150,000. The required rate of return is 14%. There are no taxe

### NPV and firm value

When a company elects to invest in a project with a positive net present value, what will generally happen to the value of the company? What will happen to this value when the company invests in a negative net present value project?

### Perpetual Growth Rate

See the attached Excel sheet and explain how Perpetual Growth of 2% was derived (it is marked in yellow). Which formula was used to get 2%or can it be an estimate?

### 'Too Hot to Handle'. Briefly summarize the case

Prepare a case study analysis of "Case 16: Too Hot to Handle" located in the Cases in Finance text by DeMello. Be sure to address the following in your analysis: a. Briefly summarize the case. b. Formulate answers to questions 1, 2, 3, 4, 5, 6, and 7 at the conclusion of the case. Be sure to include your calcu

### Risk preference/risk analysis and NPV calculations

Part one 1. Risk preferences Sharon Smith, the financial manager for Barnett Corporation, wishes to evaluate three prospective investments: X, Y, and Z. Currently, the firm earns 12% on its investments, which have a risk index of 6%. The expected return and expected risk of the investments are as follows: Investment Expect

### Calculating NPV, Profitability Index and IRR

1.TLC Corp. is considering purchasing one of two new diagnostic machines. Either machine would make it possible for the company to bid on jobs that it currently isn't equipped to do. Estimates regarding each machine are provided below: Machine A Machine B Original Co