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    Net Present Value (NPV)

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    X-treme Vitamin Company - Payback and NPV

    X-treme Vitamin Company is considering two investments, both of which cost $10,000. The cash flows are as follows: Year Project A Project B 1 12,000 10,000 2 8,000

    Using Rate of Return to Select a Project

    Company X is debating a project. The sales are expected to be 15 000 units for each of 5 years after that the machinery will be discarded (assume zero value at that time). The price of the unit might be either $13.50 or $13.70 with equal probabilities. Variable costs are $4.30 per unit and Fixed costs are $49 000 per year. The i

    Net present value method

    What is normally used as the discount rate in the net present value method? Provide a brief summary or example of this calculation.

    A) Compute the yearly expected costs of diesel fuel for both assumptions. b. What will be the dollar savings in diesel expenses each year for assumption one and for assumption two? c. Find the increased cash flow after taxes for both forecasts. d. Compute the net present value of the truck purchases for each fuel forecast assumption and the combined net present value (that is, weigh the NPVs by .5). e. If you were Mr. King, would you go ahead with this capital investment? f. How sensitive to fuel prices is this capital investment?

    Ace Trucking Company is considering buying 50 new diesel trucks that are 15 percent more fuel-efficient than the ones the firm is now using. Mr. King, the president, has found that the company uses an average of 10 million gallons of diesel fuel per year at a price of $1.20 per gallon. If he can cut fuel consumption by 15 percen

    NPV: Which of the statements are correct?

    Moynihan Motors has a WACC of 10%. The firm is considering two normal, equally risky, but mutually exclusive projects. Project A has an IRR of 15%, while Project B has an IRR of 20%. Which of the following statements is CORRECT? A. Both projects have a negative NPV. B. Since the projects are mutually exclusiv

    Net present value (NPV) of a project

    A project will require an initial investment of $750,000 and will return $200,000 each year for five years. If taxes are ignored and the required rate of return is 9%, what is the project's net present value? Based on this analysis, should the company proceed with the project?

    NPV

    What is the NPV of a project that costs $100,000 and returns $45,000 annually for three years if the opportunity cost of capital is 14%?

    Net Present Value and Expected Value

    Larry's Athletic Lounge is planning an expansion program to increase the sophistication of its exercise equipment. Larry is considering some new equipment priced at $20,000 with an estimated life of five years. Larry is not sure how many members the new equipment will attract, but he estimates his increased yearly cash flows for

    ACH Disbursing and NPV

    The MC Donald Company can convert to ACH disbursing for $20,000. McDonald averages a perpetual 500 checks per month and has an annual cost of capital of 10%. If ACH disbursing will save McDonald's 20 cents per payment, what is the NPV of the decision to convert to ACH? What is the minimum number of payments per month in order to

    Cost of Capital Calculations

    I need help in understanding the cost of capital and how to figure it. Calculate the values for each project using the time value table- the cost of capital is 12% 1. NPV 2. IRR 3. Profitability index 4.Payback Period Year Project A Project B 0 $-30,000 $-60,000 1 $ 10,000 $20,000 2 $ 10,000 $20,000 3 $ 10,000 $20,

    Present value of investment and cash flow

    Crittenden Company is considering two mutually exclusive investments in capital equipment that have a 10% cost of capital. Cash flow information for the two alternatives is below. Investment 1 $Investment 2 Initial investment in equipment $110,000 170,000 Increase in annu

    The NPV of the Trading Opportunity Each Year

    3) Jim Bob is a stock picking genius. Every year, based on his system, he has the ability to invest $100 (only) in a security that is expected to earn a 20% return over the next year. That security always has a beta of one. Assume that the risk free rate is 4%, and the market risk premium is 6%. Assume that Jim Bob organized hi

    NPV Calculation Problem

    A project requires a $5000 cash investment at the beginning of year 1. This project will produce a $2000 cash income at the end of each of years 1-4. Using appropriate annual discount factors set up a simple table showing data and a calculation of the NPV of this cash flow discounted at 10%.

    Managing Costs and Profitability

    Congratulations! Your work on understanding and managing the costs and profitability of Claire's Antiques has resulted in record-breaking sales volume and profits. As a result, senior management is considering two new warehouse locations in order to serve its customers in the North and West more efficiently. Unfortunately, the c

    Capital Budgeting - Cost of Capital

    Your firm is considering the purchase of a machine tool automation system. Which of the following should you choose if your cost of capital is 15%? The life of both alternatives is 5 years. Why? Acme Machine: Cost = $55,000 Maintenance Contract: $12000 annually Baker Machine: Cost $39,000 Maintenance Con

    NPV, Payback, Collections,

    1. Winter Corporation expects to buy a machine for $126,000, which will be depreciated over an 8 year period on a straight-line basis with no salvage value. The machine is expected to generate a net cash flow of $36,000 per year. What is the payback period? 2. If credit sales are $20,000 in March and $16,000 in April, and i

    Parker Products: Net present value of a project for a new detergent.

    Parker Products manufactures a variety of household products. The company is considering introducing a new detergent. The company's CFO has collected the following information about the proposed product. (Note: You may or may not need to use all of this information, use only the information that is relevant.) - The project

    Investing/Budgeting Review Questions

    1. You would like to have $5000 in savings at the end of five years. How much money, in equal amounts, must be invested at the end of each of the next five years in order to achieve your goal? Your current savings balance is $500 and the interest rate you expect to earn over the next five years is 6.5 percent per year. 2. C

    Is it worth paying for the test?

    Your midrange guess as to the amount of oil in a prospective field is 10 million barrels, but in fact there is a 50 percent chance that the amount of oil is 15 million barrels, and a 50 percent chance of 5 million barrels. If the actual amount of oil is 15 million barrels, the present value of the cash flows will be only

    PLEASE PROVIDE ANSWER AND EXPLANATION IN WORD FORMAT

    Honda and GM are competing to sell a fleet of 25 cars to Hertz. Hertz fully depreciates all of its rental cars over five years using the straight-line method. The firm expects the fleet of 25 cars to generate $100,000 per year in earnings before taxes and depreciation for five years. Hertz is an all-equity firm in the 34-percen

    Sensitivity Analysis of Emperor's Clothes Fashions

    Emperor's Clothes Fashions can invest $5 million in a new plant for producing invisible makeup. The plant has an expected life of 5 years, and expected sales are 6 million jars of makeup a year. Fixed costs are $2 million a year, and variable costs are $1 per jar. The product will be priced at $2 per jar. The plant will be depre

    Present Value

    The Swell Computer Company has developed a new line of desktop computers. It is estimated that the cash returns generated by the new product line will be $800,000 per year for the next five years, and then $500,000 per year for 3 years after that (the cash returns occur at the end of each year). At a 9% interest rate, what i

    Payback Period & Net Present Value

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

    NPV and IRR Example

    NPV Example ? Pharmaceutical plant costs $50MM today ? Net cash flows: (no benefit until year 2) - Year 2: $9MM - Year 3: $10MM - Year 4: $11MM ? Assume a no-growth perpetuity after Year 4 ? Risk adjusted cost of capita = 14% ? What is NPV? Internal Rate of Return ? IRR is the break-even rate ? At what rate does the

    Kinsgsley Products Ltd - Alternative company choice

    Kinsgsley Products Ltd, is using a model 400 shaping machine to make one of its products. The company is expecting to have a large increase in demand for the product and is anxious to expand its productive capacity. Two possibilities are under consideration: Alternative 1: Purchase another model 400 shaping machine to operate