You own an aluminum extrusion company. Your plant manager has recommended a new extrusion machine be bought for $250,000. He says it will save $65,000 per year in reduced labor costs and reduced aluminum waste. The machine will have a life of 8 years with no salvage value. Your required rate of return is 10%. a. Pl
1. As director of capital budgeting for Meeker Coprporation, you are evaluating two mutually exclusive projects with the following net cash flows: Project X Project Z Year Cash Flow Cash Flow 0 $(100,000.00) $(100,000.00) 1 $50,000.00 $10,000.00 2 $40,000.00 $30,000
Evaluate 2 mutually exclusive project projects using DCF methods. Cost of capital on both projects is 10% Initial outlay for both projects is $100,000. Both projects will be completed in 3 years. Project A - will return $60,000 at the end of each of its first 2 years and then there will be no cash flow for its thir
Generally defined, insider trading is the buying or selling of a company's securities, by corporate officials or others with a fiduciary duty, on the basis of nonpublic information that's supposed to remain confidential. As noted in McLean (see the attached material, page 266) such inside trading is illegal under U.S. securities
What would you suggest to improve investing activities in a company?
Using NPV methodology rank the 4 projects from Most to least desirable for company profits. should any project be avoided? why? Project 1). Requires an initial cash expenditure of $ 50,000, has a 10% cost of capital, and will return 5 years of income flow in the amount of $ 15,000 each year. Project 2). Will require an ini
Are you going to do the whole problem set for me or just part c and d? Also, can i get the answer in 3 hours? Thanks very much for your help. With the data provided, how can i perform the scenario analysis in excel and how to find the risk-adjusted NPV if the project appears to be more or less risky than an average project
I am having a problem finding out what the interest rates should be to complete the problem. How do I find the discount rate and the reinvestment rates. I could also use some help on figuring what the system is for determining the payback. TABLE IC11-1. ALLIED'S LEMON JUICE PROJECT (TOTAL COST IN THOUSANDS)
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 depreciated straightline over 10 years to a
In identifying changes in net cash flows, which of the following would have the least (if any) effect on net working capitol? a) Making cash purchases of land for a new baseball manufacturing plant b)Allowing your sales staff to make more sales on credit c) Doubling the size of inventory to accommodate new product lines d)
Your sister is just about to graduate from college and is thinking of going on to grad school. She is only interested in making the present value of her income stream as high as possible, and she can borrow and lend at an interest rate of 5%. (1) If she doesn't go to grad school she can earn $30,000 a year for the next 45 ye
Imagine that you stumble across a winning lottery ticket whose prize is a million dollars. Your first reaction, no doubt, would be to ask how the prize money will be paid out so that you could compute its present value. (1) Suppose it is to be paid out in 10 installments of $100,000 each. If the interest rate is 5%, what is
A company is evaluating two mutually exclusive projects B and C, each having a useful life of 3 years. B requires an immediate capital outlay of £1.2m while C required £1m. In the absence of cost and price inflation, the cash flows shown in the following table would remain constant throughout the life of the each project and a
You have the opportunity to invest in a machine that costs $340,000. The machine generates revenues of $100,000 at the end of each year, and requires maintenance costs of $10,000 at the beginning of each year. The machine incurs a maintenance cost today. If the economic life of the machine is 5 years, and the discount rate
You have the opportunity to make an investment of $900,000. If you make this investment, you make $12,000, $250,000 and $800,000 one, two and three years from today, respectively. The discount rate is 12% a) Should you make this investment? b) What is the NPV (net present value) of this opportunity? c) If the discount rat
Generate spreadsheet that shows best case and worse case prices that the company will consider paying for the investment. Determine a price estimate for this company via the Net Value technique using the discount rate of 11.2%. Use best case scenario and worse case scenario cash flows given and discount each of those annual
A manufacturer must decide whether to build a small or a large plant at a new location. Demand at the location can be either small or large, with probabilities estimated to be0.4 and 0.6 respectively. If a small plant is built, and demand is large, the production manager may choose to maintain the current size or to expand. The
Capital Cost Allowance and Present Values The president of a software company is contemplating acquiring some computers used for designing software. The computers will cost $150,000 cash and will have zero terminal salvage value. The recovery period and useful life are both three years. Annual pre-tax case savings from op
The company has a 40 percent marginal tax rate and requires a 12 percent after tax rate of return. 1) Calculate the net present value of each of the three alternatives. Recognize all applicable tax implications. Which alternative should Ruiz select? 2) What are some factors besides the net present value that should influe
New Equipment The Office Equipment Company has offered to sell some new packaging equipment to the Diaz Company. The list price is $42,000, but Office Equipment has agreed to accept some old equipment in trade. A trade-in allowance of $9,000 was agreed upon. The old equipment was carried at a book value of $7,700 and could b
Which is the net present value of a project that contributes $5,000 at the end of the first year and $8,000 at the end of the second year. The initial cost is $3,000. The appropriate interest rate is 8% for the first year and 9% for the second year. what I dont get here is if I have to bring the values to the present or the f
IRR/NPV. Consider this project with an internal rate of return in 13.1 percent. Should you accept or reject the project if the discount rate is 12 percent? Year Cash Flow 0 +$100 1 -60 2 -60
13. CAPM and Valuation. You are a consultant to a firm evaluating an expansion of its current business. The cash flow forecasts (in millions of dollars) for the project are: Years Cash Flow 0 -100 1-10 + 15 Based on the behavior of the firm's stock, you believe that the beta of the firm is 1.4. Assuming that the rate
A firm is considering two mutually exclusive investments, each with an ititial outlay of 100,000 dollars and an expected life of 3 years. Assume that the firm has a cost of capital of 10 % for each project The 2 investments are of equal risk and have the following cash flows investment A investment B
Graphic Systems purchased a computerized measuring device two years ago for $80,000. It falls into the five-year category for MACRS depreciation. The equipment can currently be sold for $28,400. A new piece of equipment will cost $210,000. It also falls into the five-year category for MACRS depreciation. Assume the new equip
7. 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 6,000 3 . . . . . . . . . . 6,000 16,000 a. Which of the two projects should be chosen based on the pa
James LaGrande had recently been appointed Controller of the Breakfast Cereals Division of a major food company. One of Jim's first assignments was to prepare the financial analysis for a new cold cereal, Krispie Krinkles. Mr. LaGrande discussed the product with the food lab that had designed it, with the market research departm
Here is recent financial data on Pisa Construction, Inc. Stock price $40 Market value of firm $400,000 Number of shares 10,000 Earnings per share $4 Book net worth $500,000 Return on investment 2% quarterly. Pisa has not performed spectacularly to date. However, it wishes to issue new shares to
Please see attachment I only need assistance with Part 4b. I don't know how to calculate the NPV in this circumstance.
Ger Company reports the following operating results for the month of August: Sales $300,000 (units 5,000); variable costs $210,000; and fixed costs $70,000. Management is considering the following independent courses of action to increase net income. 1. Increase selling price by 10% with no change in total variable costs.