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# Net Present Value (NPV)

### Calculate the NPV of a proposed project

Given the following information, calculate the NPV of a proposed project: Cost = \$4,000; estimated life = 3 years; initial decrease in accounts receivable = \$1000, which must be restored at the end of the project's life; estimated salvage value = \$1,000; net income before taxes and depreciation = \$2,000 per year; method of depre

Your firm is looking at a new investment opportunity, Project Alpha, with net cash flows as follows: ---- Net Cash Flows ---- Project Alpha Initial Cost at T-0 (Now) (\$10,000) cash inflow at the end of year 1 6,000 cash inflow at the end of year 2 4,000 ca

### Value Maximization Decisions

Using the data in the attached income statement, explain the three value maximization decisions. After taking a closer look at the numbers and doing the financial analysis, you begin to think more strategically, and in a broader context, you anticipate what the CFO would ask or what the head of Strategic Planning might want to k

### Product Life: Develop a new car, determine minimum number of cars that must sell

You work for an automobile company that is considering developing a new car. The product development cost for this new car will be \$500 million per year for 3 years. During the third year of product development, the company will incur \$1 billion for manufacturing set up costs. Three years after the start of product developmen

### The Net Present Value of a Purchase

A new electronic process monitor costs \$140,000. The cost will be depreciated straight-line to zero over five years. The monitor will actually be worthless in five years. The new monitor would save us \$50,000 per year before taxes in operating costs. If we require a 10% return, what is the NPV of the purchase? Assume a 34% tax r

### Conventional Cash Flows in a Project

Projects A and B have the same cost, and both have conventional cash flows. The total cash inflows for A (undiscounted) are \$400. The total for B is \$360. The IRR for A is 20%; the IRR for B is 18%. a) What can you deduce about the NPVs for Projects A and B? b) What do you know about the crossover rate?

### Cash flows of two investments

Consider the following cash flows on two not mutually exclusive investments. Year Investment A Investment B 0 -\$100 -\$100 1 44 69 2 56 51 3 65 32 The required return is 15%. The investments are not mutually exclusive. a) Calculate the NPV and

### New fabric cutting system: Net present value for decision

We are contemplating a new fabric cutting system to replace our current manual system. It will cost \$600,000 to get the new system. The cost will be depreciated straight-line over its four-year expected life. The system will actually be worth \$100,000 at the end of four years. We think that the new system will save us \$180,0

### Finance problems: NPV, Freddie Industries bond, break even level of output

1-An investment costs 10,000 and offers an annual cash flow of 1770 for 10 years. According to the net present value method of capital budgeting, should the firm make this investment if its cost of capital is 10%? 2-A Freddie Industries \$10,000 bond was issued with a 6% coupon rate and will mature in 20 years. Assume that the

### Calculating NPV, Rate of Return and cash discount

1.An investment costs \$10,000 and offers and annual cash flow of \$1,770 for ten years. According to the net present value method of capital budgeting, should the firm make this investment if its cost of capital is 10% 2.If and asset is bought for \$10,000 and sold for \$20,000 after ten years. What was the annual rate of retu

### Reconciliation of net income to net cash provided by operating

Altobelli Auto Parts had a cash balance on December 31, 20X0, of \$50,000. Its net income for 20X1 was \$364,000. Its 20X1 transactions affecting income or cash were (in thousands): 1. Sales of \$1,600, all on credit. Cash collections from customers, \$1,450. 2. The cost of items sold, \$850. Purchases of inventory totaled \$900;

### Jensen's Inequality and HMG Project Risk Analysis

Work in excel please. 3-2 JENSEN'S INEQUALITY Consider a simple situation where uncertain cash flows arise in two periods. Create a simulation model where revenues in Year 1 are mod-eled as Uniform (10,20) and costs in Year 1 are modeled as Uniform (2,12). Define net cash flow as the difference between revenues and costs. F

### Accounting: Mindy Norton, LeBron, Austin, Kwiatkowski, Xtra Company

Please also see attachment. 1) Mindy Norton Company reported the following information for 2004: Sales \$500,000 Average Operating Assets \$300,000 Desired ROI 10% Net Income \$ 45,000 Based on this information, calculate the company's residual income for 2004. 2) LeBron Company is considering two new machi

### Golden Corporation: Cost of capital, expected NPV and purchase decision

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

### Capital Budgeting-unequal lives: Outcast, Inc., has hired you to advise the firm on a capital budgeting issue involving two unequal-lived, mutually exclusive projects, M and N. The cash flows for each project are presented in the table at the top of the facing page. Calculate the NPV and the annualized net present value (ANPV) for each project using the firm's cost of capital of 8%. Which project would you recommend?

E10-4 Outcast, Inc., has hired you to advise the firm on a capital budgeting issue involving two unequal-lived, mutually exclusive projects, M and N. The cash flows for each project are presented in the table at the top of the facing page. Calculate the NPV and the annualized net present value (ANPV) for each project using the

### ROI

Assuming monetary benefits of an information system at \$85,000 per year, one-time costs of \$75,000, recurring costs of \$35,000 per year, a discount rate of 12 percent, and a 5-year time horizon, calculate the net present value of these costs and benefits of an information system. Also calculate the overall return an investment o

### Creating a decision for given alternatives.

Create a decision tree for a capital investment project to compare acquisition of a competitor with five-year present value high/low cash flow of \$500/\$400 million (probability 80%/20%) at an acquisition cost of \$300 million, versus entry into the competitors field with a five-year present value high/low cash flow of \$200/\$100 m

### Finance: comparing interest rates, time value, investment criteria, IRR, NPV, lease

Please view entire attachment for details. Please show all of your work and/or logic followed in preparing the solutions. #1: Comparing Interest Rates #3: Applying the Time Value #4: Investment Criteria #5: IRR & NPV #6: Buy vs. Lease #7: WACC Components - Quiz #1,2, 4, & 5 Part A Part B Par

### NPV

Please find the attached problem. I am having trouble calculating the payback period & net present value. Caledonia is considering two additional mutually exclusive projects. The cash flows associated with these projects are as follows: YEAR PROJECT A PROJECT B 0 -\$100,000 -\$100,000 1 32,000 0 2 32,000 0 3 32,000 0 4

### PDA Sim simulation

Module 04 - Session Long Project For the third and final run of this simulation, enter your decisions taking into account the changes in strategy you proposed in Module Three. Then in a 2-3 page paper discuss Your company's performance in this run. How it compares to the last run. Why you think you did better or wor

### Buy Lottery winner 19 annual payments. NPV at 8%, or 4.2 million

In August 1994, the Wall Street Journal reported that the winner of tile Massachusetts State Lottery prize had the misfortune to be both bankrupt and in prison for fraud. The prize was \$9,420,713, to be paid in 19 equal annual installments. (There were 20 installments, but the winner had already received the first payment.) The

### Estimating costs and future cash flows

Assume that GM is considering developing a new car to run on solar power. Estimate GM's costs in bringing this car to the market and anticipate future cash flows from the sales of this car. Conduct an NPV analysis. Based on your findings, make a recommendation: should GM develop the new car?

### Calculating NPV

Calculate the net present value of a \$250,000 lottery win paid in equal annual installments over 5 years assuming a discount rate of 4%.

### Calculating NPV and IRR for a Replacement

A firm is considering an investment in a new machine with a price of \$2 million to replace its existing machine. The current machine has a book value of a \$1 million and a market value of \$9 million. The new machine is expected to have a four-year life, and the old machine has four years left in which it can be used. If the firm

### Comparing Investment Criteria

Mario Brothers, a game manufacturer, has a new idea for an adventure game. It can market the game either as a traditional board game or as an interactive CD-ROM, but not both. Consider the following cash flows of the two mutually exclusive projects for Mario Brothers. Assume the discount rate Mario Brothers is 10 percent. Yea

### NPV versus IRR

Consider the following cash flows on two mutually exclusive projects for the Bahamas Recreation Corporation (BRC). Both projects require an annual return of 15 percent. Year Deepwater Fishing New Submarine Ride 0 -\$600,000 -\$1,800,000 1 27

### Finance: quick ratio, debt ratio, financial forecasting, asset turnover, FV, NPV

1. Which of the following transactions does not affect the quick ratio? a. Land held for investment is sold for cash. b. Equipment is purchased and is financed by a long-term debt issue. c. Inventories are sold for cash. d. Inventories are sold on a credit basis. 2. The debt ratio is a measure of a firm's: a. leverage.

### Finance: PV, annual payment, NPV, capital structure, current ratio

See attached Excel file. SHOW YOUR WORK in order to get part credit if your answer is wrong on problems 1 Whats the PV of \$5000 received 5 years from now; your personal investment track record is 10% 2 Whats the annual payment required on a 3 year \$20,000 auto loan which has a

### Calculate the projects expected NPV, standard deviation, and coefficient of variation

Company A is considering a proposed project whose estimated NPV is 12 million. The estimate assumes that economic conditions will be "average". However the CFO realizes that conditions could be better or worse, so a scenario analysis was performed and the following results were obtained; Economic Scenario Prob.

### Theta Widgets: Cash flow and compute its NPV using a given WACC.

Theta Widgets Inc. is known for manufacturing some of the highest quality widgets in the country. One of the machines that Theta uses may need replacement. The following information is available to you: ? Revenues will not change if the machine is replaced. ? The present 'old' machine has a 'book value' of \$50,000. ? The ne