A classic problem in management of forests is determining when it is most economically advantageous to cut a tree for lumber. When the tree is young, it grows very rapidly As it ages, its growth slows down. Why is the NPV-maximizing rule to cut the tree when its growth rate equals the discount rate?
Here are the cash flows for two mutally exclusive projects: Project A: Co : -20,000 C1: +8,000 C2: +8000 C3: +8000 Project B: C0: -20,000 C1: 0 C2: 0 C3: +25,000 a. At what interest rates would you prefer project A to B? b. What is the IRR of each project?
Year zero, Check your net cash flow. You have a tax loss. That has an impact on cash flow (CF) and needs to be taken into account either in year zero or in subsequent years, with the correct method to account for it in the spreadsheet in year 0. Year 0, then list year 1 to year 8 but don't create a cumulative column so you can
ABC Manufacturing is thinking of launching a new product. The company expects to sell $900,000 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 will r
Projects A and B have the same expected lives and initial cash outflows. However, one project's cash flows are larger than in the early years, while the other project has larger cash flows in the later years. The two NPV profiles are given below: (diagram in the attached file). Which of the following statements is most correc
When evaluating potential projects, which of the following factors should be incorporated as part of a project's estimated cash flow? A) Any sunk costs that were incurred in the past prior to considering the proposed project. B) Any opportunity costs that are incurred if the project is undertaken. C) Any externalities (both
Deer Valley Lodge, a ski resort in the Wasatch Mountains of Utah, has plans to eventually add five new chairlifts. Suppose that one lift costs $2 million, and preparing the slope and installing the lift costs another $1.3 million. The lift will allow 300 additional skiers on the slopes, but there are only 40 days a year when the
Deer Valley Lodge, a ski resort in the Wasatch Mountains of Utah, has plans to eventually add five new chairlifts. Suppose that one lift costs $2 million, and preparing the slope and installing the lift costs another $1.3 million. The lift will allow 300 additional skiers on the slopes, but there are only 40 days a year when the
Deer Valley Lodge, a ski resort, has plans to eventually add five new chairlifts. Suppose that one lift costs $2 million, and preparing the slope and installing the lift costs another $1.3 million. The lift will allow 300 additional skiers on the slopes, but there are only 40 days a year when the extra capacity will be needed. (
Deer Valley Lodge, a ski resort in the Wasatch Mountains of Utah, has plans to eventually add five new chairlifts. Suppose that one lift costs $2 million, and preparing the slope and installing the lift costs another $1.3 million. The lift will allow 300 additional skiers on the slopes, but there are only 40 days a year when the
Deer Valley Lodge, a ski resort in the Wasatch Mountains of Utah, has plans to eventually add 5 new chairlifts. Suppose that one lift costs $2 million, and preparing the slope and installing the lift costs another $1.3 million. The lift will allow 300 additional skiers on the slopes, but there are only 40 days a year when the ex
12. The Nagud Company had the following financial information in the annual audited financial statements. Balance Sheet Current Assets Current Liabilities Cash $ 2,500 Accounts Payable $5,000
Please see attached. Hercules Exercising Equipment Co. purchased a computerized measuring device two years ago for $60,000. The equipment falls into the five-year category for MACRS depreciation and can currently be sold for $23,800. A new piece of equipment will cost $150,000. It also falls into the five-year category for MA
ABC Manufacturing is thinking of launching a new product. The company expects to sell $900,000 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 will require a new p
6. Diaz Camera Company is considering two investments, both of which cost $10,000. The cash flows are as follows: Year Project A Project B 1 . . . . . . . $6,000 $5,000 2 . . . . . . . 4,000 3,000 3 . . . . . . . 3,000 8,000 a. Which of the two projects should be chosen based on the payback method? b. Which of the two proj
Please see attached. An investment of I = $2, 000 dollars now results in the cash flow Fn = $50, n = 0, 1, . . . ....∞ Assume that the inflation-free interest rate is currently i = 2.5%. The inflation-free interest rate will change at the end of the first year. There is a 0.5 probability that it will increase to 3%, and
Year Undiscounted free cash flows 0 (380,000) 1 20,000 2 30,000 3 200,000 4 175,000 5 130,000 6 145,000 Required rate of return 15% 5. Assume the required rate of return increases to 20%. The net present value of the investment wo
13. You may have heard big business criticized for focusing on short-term performance at the expense of long-term results. Explain why a firm that strives to maximize stock prices should be less subject to an overemphasis on short-term results than one that simply maximizes profits. 14. We claim that the goal of the firm is t
1. An investment requires an initial outlay of $1,500,000 and generates cash flows of $200,000 at the end of each year for ten years. The required return is 10%. Find the net present value, profitability index and the payback period. Is the investment desirable? 2. 40% tax bracket. Compute the after-tax cash flows for th
General Electric is considering the investment in a capital project. The initial cost in year 0 is $100,000 to be depreciated straight line over 5 years to an expected salvage value of $5,000. The firm?s tax rate is 35% and it has an 11% cost of capital. For this project an additional investment in working capital of $8,000 is r
Net CFAT ($1,100,000.00) $479,000.00 $11,500,000.00 $5,355,000.00 X
ABC Manufacturing is thinking of launching a new product. The company expects to sell $900,000 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 will require a new p
(i) Other than the net present value (NPV)give an analysis of other matters to be considered in decision process. ie. IRR, PAYBACK and analyse these options in detail. (ii) Evaluate appropriate sources of finance that could be used to fund the setting up a new factory for a privately family owned company. (The company produ
** Please see the attached file for the fully formatted problem ** Instructions Determine the missing amounts. Presented below is a financial information for two different companies Amoruso Company Tamburri Company Sales $90,000 (d) Sales return (a) $5,000 Net Sales 83,000
Net Present Value - See the attached file. Sleep-Easily Ltd manufactures high quality, branded orthopaedic furniture in Manchester. The products are made in limited numbers and for limited production periods of usually no more than six years. All products are sold on the Web, supported by speciality magazine advertising. A s
#1 The Acme Manufacturing has a project involving the purchase of equipment for $35,000 that will increase sales of Acme Manufacturing by $ 14,500 per year. The annual running costs of this equipment for the first 3 years are $ 1,000, $ 2,000, and $ 4,000 respectively. It will increase by $ 3,500 every year from then on. The e
Problem #3 (26.) Abandonment Option. Hit or Miss Sports is introducing a new product this year. If its see-at-night soccer balls are a hit, the firm expects to be able to sell 50,000 units a year at a price of $60 each. If the new product is a bust, only 30,000 units can be sold at a price of $55. The variable cost of each ba
Calculating Project Cash Flows and NPV - See attached file. If your portfolio is invested 30 percent each in A and B and 40 percent in C, what is the portfolio's expected return? The variance? The standard deviation? b. If the expected T-bill rate is 4.25 percent, what is the expected risk premium on the portfolio? c. I
1. Certainty equivalents - Accept - reject decision Pleasantville ball valve has constructed a table, shown below, that gives expected cash inflows and certainty equivalent factors for these cash inflows. These measures are for a new machine with a five-year life that requires an initial investment of $95,000. The fir
An oil well is expected to yield an annual net return of $25,000 for the next 15 years, after which it will run dry. An investor wants a return on his investment of 20%. He can establish a sinking fund earning 10% annually. How much should he pay for the oil well?