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Net Present Value (NPV)

Project Evaluation-Kinky Copies

Kinky Copies may buy a high-volume copier. The machine costs $100,000 and will be depreciated straight-line over 5 years to a salvage value of $20,000. Kinky anticipates that the machine actually can be sold in 5 years for $30,000. The machine will save $20,000 a year in labor costs but will require an increase in working capita

Net Present Value and Net Cash Folws

The confectioner corner Inc. would like to buy a new machine that automatically dips chocolates. The dipping operation is currently done largely by hand. The machine the company is considering costs $100,000. The machine would be usable for 10 years but would requirement of several key parts at the end of the fifth year. These p

NPV of an investment at two different marginal tax rates

Carol wants to invest in a project that requires a $20,000 investment. She expects a before-tax return of $16,000 in years 1 through 3 from this investment. She uses a 6 percent discount rate for evaluation but is not sure if her marginal tax rate will be 15 percent or 25 percent. What difference does the marginal tax rate make

Business Decision: Investment in a New Machine

Need help with this problem. Karl is planning to buy a new ZZZ machine for the club. Members have told him the new ZZZ machine will raise the club's annual revenues by $1000 per year. Karl's club is a taxable: tax rate is 36%. He plans to depreciate the new ZZZ machine on a straight line basis to a zero salvage value at

Compare Net Present Value of two investment projects

10-2 You division is considering two investment projects, each of which requires and up front expenditure of $15 million. You estimate that the investments will produce the following net cash flow: Year Project A Project B 1 $5,000,000 $20,000,000 2 $10,000,000 $10,000,000 3 $20,000,000 $6,000,000 What are the two

EPP: Calculate a capacity alternative

Question 45: A capacity alternative has an initial cost of $50,000 and cash flow of $20,000 for each of the next four years. If the cost of capital is 5 percent, the net present value of this investment is: a) greater than $130,000 b) greater than $80,000 c) impossible to calculate, because no interest rate is given

Continental Medical Supplies: Kelly McClung and I. M. Madd

Kelly McClung was recently hired as a cost analyst by Continental Medical Supplies Inc. One of Kelly's first assignments was to perform a net present value analysis for a new warehouse. Kelly performed the analysis and calculated a present value index of 0.75. The plant manager, I. M. Madd, is very intent on purchasing the wareh

Break Even Point: Gateway Appliance

Gateway Appliance toasters sell for $20 per unit, and the variable cost to produce them is $15. Gateway estimates that the fixed costs are $80,000. Compute the break-even point in units. After solving this problem, discuss the relative merits of Net Present Value analysis versus Breakeven analysis.

Net income and Net cash flow

3-6 The Klaven Corporation has operating income fo $750K. The company's depreciation expense is $200K. Klaven is 100% equity financed and it faces 40% tax rate. What is the company's net income? What is its net cash flow?

Capital Budgets: Compute project's NPV

A firm wishes to bid on a contract that is expected to yield the following after-tax net cash flows at the end of each year: Year Net Cash Flow 1 $5,000 2 8,000 3 9,000 4 8,000 5 8,000 6 5,000 7 3,000 8 $-1,500 To secure the contract, the fi

Description of a Project's Net Present Value

A project has an initial requirement of $310,000 for fixed assets and $62,000 for net working capital. The fixed assets will be depreciated to a zero book value over the 3-year life of the project and have an estimated salvage value of $155,000. All of the net working capital will be recouped at the end of the project. The annua

Abandonment option impacts

Please provide an explanation for the answer. Which of the following statements best describes the likely impact that an abandonment option will have on a project's expected cash flow and risk? A. No impact on expected cash flow, but risk will increase. B. Expected cash flow increases and risk decreases. C. Expected

Capital Budgeting Techniques Using Net Present Value

Assume the following scenario: 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

Risk-adjusted discount rates and risk classes

The G. Wolfe Corporation is examining two capital-budgeting projects with 5-year lives. The first, project A, is a replacement project; the second, project B, is a project unrelated to current operations. The G. Wolfe Corporation uses the risk adjusted discount rate method and groups projects according to purpose, and then uses

Basic Net Present Value Analysis

On January 2, Fred Critchfield paid $18,000 for 900 shares of the common stock of Acme Company. Mr. Critchfield received an $0.80 per share dividend on the stock at the end of each year for four years. At the end of four years , he sold the stock for $22,500. Mr. Critchfield has a goal of earning a minimum return of 12% on all

After Tax Cash Flows in Net Present Value Analysis (LOB)

Kramer Corporation is considering two investment projects, each of which would require $50,000. Cost and cash flow data concerning the two projects are given below: Project A Project B Investment in high speed photocopier $50,000 Investment in working cap

Depreciation/Working Capital

1. XYZ Company is considering offering a cash discount to speed up the collection of accounts receivable. Currently the firm has an average collection period of 65 days, annual sales are 35,000 units, the per-unit price is $40, and the per-unit variable cost is $29. A 2% cash discount is being considered. XYZ estimates tha

Rate of return

An investment that costs $48,000 provided annual cash flows of $9,000 per year for six years. The desired rate of return is 10%. The actual return from the investment was: a) less than the desired rate of return, b) equal to the desire ROI c) greater than the desired ROI, d) or it cannot be determined.

Financial management

You have just graduated from the MBA program of a large university, and one of your favorite courses was "Today's Enterprenuers." In fact you enjoyed it so much you have decided you want to "be your own boss". While you were in the master's program, your grandfather died and left you $1 million to do with as you please. You are

Net Present Value and Profitability Index

Lebar Company is considering two mutually exclusive investment alternatives. Lebar has a 10% cost of capital. Following is the cash flow information for the two alternatives (see attached): Compute the net present value for each alternative and determine which alternative is more desirable using the net value criterion.

Yonan Inc. is considering Projects S and L

Yonan Inc. is considering Projects S and L, whose cash flows are shown below. These projects are mutually exclusive, equally risky, and not repeatable. In this particular case, if the decision is made by choosing the project with the shorter payback, some value (in terms of NPV) may be forgone. How much value will be los

NPV (Net Present Value) of a Project

A project has an initial cost of $52,125, expected net cash inflows of $12,000 per year for 8 years, and a cost of capital of 12%. What is the project's NPV?

Kinky Copies may buy a high-volume copier.

Kinky Copies may buy a high-volume copier. The machine costs $100,000 and will be depreciated straight-line over 5 years to a salvage value of $20,000. Kinky anticipates that the machine actually can be sold in 5 years for $30,000. The machine will save $20,000 a year in labor costs but will require an increase in working capit

Tax Benefits..

A firm wishes to bid on a contract that is expected to yield the following after tax net cash flows at the end of each year: Year Net Cash Flows 1 $5,000 2 8,000 3 9,000 4 8,000 5 8,000 6 5,000 7 3,000 8 ($-1,500) To secure the contract, the firm must spend $30,000 to reto

NPV and IRR in Excel

After a long drought, the manager of Long Branch Farm is considering the installation of an irrigation system which will cost $100,000. It is estimated that the irrigation system will increase revenues by $21,500 annually, although operating expenses other than depreciation will increase by $5,000. The system will be depreciated

Screening Capital Projects

Dear Vineet Swarup, The attached file contains 2 problems/questions. I computed the second problem but I am not sure if this is correct, therefore please check it and in case of any mistakes, provide the correct solution. Also, please help me with the number one question. Thank you in advance 1. Share with us either y