NPV and Opportunity Cost of Capital Problem
I need to see intermediate steps and formulas. See attachment.
I need to see intermediate steps and formulas. See attachment.
In real life the future health of the economy cannot be reduced to three equally probable states like slump, normal, and boom. But we'll keep that simplification for one more example. Your company has identified to more projects, B and C. Each will require a $5 million outlay immediately. The possible payoffs at year 1, ar
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 requires a new
Describe how the IRR and NPV approaches are related.
Swanee Resorts is considering a new project whose data are shown below. The equipment that would be used has a 3-year tax life, would be depreciated by the straight line method over the project's 3 year life, and would have zero salvage value. No new working capital would be required. Revenues and other operating costs are ex
Suppose an analyst makes a mistake and calculates the NPV or an investment project by discounting the project's contribution to net income each year rather than by discounting its cash flow. Would you expect the NPV based on net income to be higher or lower than the NPV calculated using cash flows?
Which of the following statements is correct? a. In a capital budgeting analysis where part of the funds used to finance the project are raised as debt, failure to include interest expense as a cost in the cash flow statement when determining the project's cash flows will lead to an upward bias in the NPV. b. The preceding s
1) Chapter 3 (Brealey) Practice Question 4 (page 53) A machine costs $380,000 and is expected to produce the following cash flows: Year 1 2 3 4 5 6 7 8 9 10 Cash flow 50 57 75 80 85 92 92 80 68 50 ($000s) If the cost of capital is 12 percent, what is the machine's NPV ?
Scenario: The Board liked an analysis you did on valuation and agreed to proceed with the expansion plan. Your CFO, investment bankers, and consultants have all been working on the cost and benefits of various expansion options. They have agreed on an option that will see simultaneous expansion into 5 domestic markets (Chicag
Need help calculating the NPV and applying Black-Scholes model to estimate value of option. Please explain how to complete each step and calculate the answers. Kim Hotels is interested in developing a new hotel in Seoul. The company estimates that the hotel would require an initial investment of $20 million. Kim expects th
The websites for balance sheets, cash flows, annuals and annual ratio are also for your viewing. I need help the with question below for Target and Wal-mart. The characteristics of these securities that may have caused the company to choose them to raise capital. Wal-Mart annual Reports: http://walmartstores.com/GlobalWM
A forklift will last for only 3 more years. It costs $5,000 a year to maintain. For $20,000 you can buy a new lift that can last for 10 years and should require maintenance costs of only $2,000 a year. If the discount rate is 5 percent per year, should you replace the forklift? What if the discount rate is 12 percent per y
The City of Charleston issued $3,000,000 of 8% coupon, 30-year, semiannual payment, tax-exempt muni bonds 10 years ago. The bonds had 10 years of call protection, but now the bonds can be called if the city chooses to do so. The call premium would be 6% of the face amount. New 20-year, 6%, semiannual payment bonds can be sold
Jackie is contemplating purchasing a new ditch digging machine that promises savings of 5,600 per year for 10 years. The cost $21,970, and no salvage value is expected. The company's cost of capital is 12%. You have been asked to advise Jackie relative to this capital investment decision. As part of your analysis, compute: 1.
A project has an upfront cost of $21,300,000. It's estimated that the project will produce the following net cash flows: Year Project Net Cash Flows 1 $13,000,000 2 $3,000,000 3 $7,200,000 a) What's the project's net present value when the cost of capital is 4%? b) What's the project's net present value when the cost
Mr. Rambo, President of Assault Weapons, Inc., was pleased to hear that he had three offers from major defense companies for his latest missile firing automatic ejector. He will use a discount rate of 12 percent to evaluate each offer. Offer 1 $500,000 now plus $120,000 from the end of year 6 through 15. Also, if the prod
*Please show all work, use excel and identify the value and units measured. (Notes for my own Use: Ch2: Case Study) I. Please read the case study below, "Racketball Racket" and then prepare for building a model in excel by answering the following 8 easy questions: 1. Explore the mess by answering the following questio
Scenario Analysis. The most likely outcomes for a particular project are estimated as follows : Unit price: $50 Variable cost: $30 Fixed cost: $300,000 Expected sales: 30,000 units per year However, you recognize that some of these estimates are subject to error. Suppose that each variable may turn out to be either 10 p
Make a spreadsheet document that contains the IRR calculations. Clearly label each diagram to identify the investment name and type of asset Show the original equation you are using Clearly identify a value for each variable in the equation Then, in a Microsoft Word document, prepare a summary report (300 words or le
The terminal value is going to be a large number but please keep in mind you need to calculate the present value of the terminal value. As far as net present value is concerned, please refer to Excel Help section per "NPV" function. If you would like to use a formula, then use the following: PV = Cash Flow at n th yea
I'm getting ready to start a Finance class. I'm reading ahead in the book to try and prepare myself for the course. I have a 4.0 GPA and really want to maintain it through graduation; however, this finance book seems like it is pretty daunting! I'm trying to understand these finance concepts and there are a few problems that I w
1. Blinkone Company's material handling costs and kilo of materials for two recent months appear below. Materials Handling Handled Costs January 80,000 kilos $160,000 February 60,000 kilos $132,000 What is the best estimate of the materials handling costs for 75,000 kilos? (Assume that this activi
If I know current market value, new product cost, service life, operating savings, year of overhaul and salvage value. Assume straight line deprecation and no taxes. Please explain how to do a NPV analysis.
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 32,000 0 5 32,000 $200,000 The required rate of return on these projects is 11 percent. a. Wh
Use the capital budgeting technique to justify India's alternate investment decisions. Also, support your choice of the discount rate used in the calculation of of NPV...
A firm is considering an investment of $28 million (purchase price) in new equipment to replace old equipment with a book value of $12 million and a market value of $20 million. If the firm replaces the old equipment with the new equipment, it expects to save $17.5 million in operating costs the first year.The amount of these sa
Your company wants to buy an oil pipeline which will generate a $2 million in after tax operating cash flow over the coming year. The pipeline oil flow is expected to last for 25 years at which time your company will need to remove the pipeline and repair the land at a cost of $7 million. Your company will need to pay legal and
1. Heritage Corp is considering a new machine that will cost $1,000,000. Net cash inflows expected are $125,000 per year for 20 years. a. Determine (Simple) Payback b. Determine Internal Rate of Return c. Assuming cost of funds is 8%, determine Net Present Value (NPV) of project, as well as profitability (Benefits to
T or F: Interest rates and corporate profits are the most important determinants of stock and market direction. The higher the discount rate used in project analysis the higher the NPV.
You have inherited an apartment complex. You are not sure whether to rent the property or to sell the property. You could receive $65,000 per year for 10 years in rent and then sell the property for $400,000. Or you can sell the property for $300,000 now and payments of $50,000 for the next 15 years. The property has a mortgage