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Net Present Value (NPV)

NPV and Break-Even Point

Ben's is a sit-down restaurant that specializes in home-cooked meals. Melissa's is a walk-in deli that specializes in specialty soups and sandwiches. Both firms are currently considering expanding their operations during the summer months by offering pre-wrapped donuts, sandwiches, and wraps at a local beach. Ben's currently has

Time Value of Money for Savings for a College Fund

Suppose that a young couple just had their first baby and they wish to ensure that enough money will be available to pay for their child's college education. Currently, college tuition, books, fees, and other costs, average $12,500 per year. On average, tuition and other costs have historically increased at a rate of 4% per year

Making Investment Decisions with the Net Present Value Rule

The Sisyphean Corporation is considering investing in a new cane manufacturing machine that has an estimated life of three years. The cost of the machine is $30,000 and the machine will be depreciated straight line over its three-year life to a residual value of $0. The cane manufacturing machine will result in sales of 2,000 ca

Beacon Company and Quillen Company

Beacon Company is considering two different, mutually exclusive capital expenditure proposals. Project A will cost $400,000, has an expected useful life of 10 years, a salvage value of zero, and is expected to increase net annual cash flows by $70,000. Project B will cost $280,000 , has an expected useful life of 10 years, a

Sundae Corporation

Sundae Corporation is considering the replacement of an existing machine.  The new machine would provide better sundaes, but it costs $120,000.  The X-tender requires $20,000 in setup costs that are expensed immediately and $20,000 in additional working capital. The X-tender's useful life is 10 years, after which it can be

Discounted Cash Flow NPV assumptions on return and inflation

1. A big challenge with the NPV is the assumptions on the return and inflation. This is less of an issue if we are buying a $100,000 machine with a 5 year life. Real estate however is a long term investment. - How do you estimate inflation over 5 years, 10 years and up to 30 years? - Nobody has a crystal ball and if you esti

NPV analysis of Jameson Cargile, Inc.

Jameson Cargile, Inc. is looking at two new bulldozers with similar investment amounts and has peformed an NPV analysis showing that the YellowJacket has an NPV over the 8 year life of -$6,352,229 while the Bumblebee shows an NPV of -$4,620,640. What could be said about the above situation? A. Both bulldozers are acceptabl

Questions for Accounting for business

1. How full costing is applied and used by managers to make good business decisions? 2. How are standards determined? Also, how are they used to manage resources? 3. What benefits could be realized by implementing decentralized budgeting and defend with examples? 4. What are two critical requirements for accurate capit

Valuation of Facebook Requirements

Valuation of Facebook This question requires you, among other things, to calculate the stock price for Facebook, and provide the needed analysis as asked in what follows. You will need to use "Sources of Financial Data" to obtain the necessary financial info/statements for Facebook, Inc., identify its peer companies and obtai

Initial Outlay

The Salida Salt Company is considering making a bid to supply the highway department with rock salt to drop on roads in the country during the winter. Management believes that the actual quantity will average 25,000 tons per year. The firm will need an initial $1,500,000 investment in processing equipment to get the project star

Review questions

Pretend that this restaurant Subway at a shopping mall is an indoor location has been open for 12 months and that business is slow and stockholders are putting pressure on us to do better. True or False? Please see attachment.

N.P.V. vs I.R.R.

Why is the N.P.V. considered to be theoretically superior to all other capital budgeting techniques? Reconcile this reasoning with the prevalence in practice of using the I.R.R. How would you respond to your C.F.O. if she instructed you to use the I.R.R. technique to make capital budgeting decisions on projects with cash flow st

Learning NPV and Cash Flows

I am practicing in my NPV and other cash flows analysis methods. Please show me the steps and formulas used to arrive to solutions. Problem#1 What is the net present value of the following cash flows at a discount rate on 12%. T=0/-250,000 t=1/100,000 t=2/150,000 t=3/200,000. Problem#2 You would like to have eno

Net Present Value Analysis

The Vice president of your division wishes to propose the implementation of a new service for your health care organization and has assigned the project to you. You have gathered all the information necessary to submit the proposal as part of the budget process for next year. You have determined that the new service will require

Explain the logic of calculating equity value

Essentially, there are four steps in calculating the equity value of a corporation: 1. Forecasting free cash flow for several years on an individual year basis . 2. Calculating terminal value at the end of this forecast time frame. 3. Discounting 1 & 2 with the company's weighted average cost of capital . 4. Subtracting o

NVP analysis Evaluate Costs

Problem 1 ABC Corp is using NVP analysis to evaluate costs associated with orders. Customer credit terms are net 30 days. The opportunity costs to ABC are 10%. The variables costs to the company for each sale is 60% of the sale and administration of credit to customers is 1.5% of sales. A. If an order amount from a new cus

The Doraville Machinery Company: product line

The Doraville Machinery Company is planning to expand its current spindle product line. The required machinery would cost $520,000. The building that will house the new production facility would cost $1.5 million. The land would cost $350,000. Working capital of $250,000 would

terminal account value

For what kinds of investments would terminal value account for a substantial fraction of the total NPV, and for what kind of investments would terminal value be relatively unimportant?

Present Value Managerial Accounting

The Cal-Fruit Company specializes in decorative fruit baskets. Currently, the company is analyzing purchase alternatives for a fruit-polishing machine. Data relevant to the decision are as follows:...Please see attachment for questions.

Break even analysis and decision tree

1.) A news clipping service is considering modernization. Rather than manually clipping and photocopying articles of interest and mailing them to its clients, employees electronically input stories from most widely circulated publications into a database. Each new issue is searched for key words, such as a client's company name,

Risk-adjusted discount rates

A firm is considering investing in one of the three mutually exclusive projects E, F, G. The firms cost of capital, r, is 15% and the risk-free rate, Rf, is 10%. The firm gathered the basic cash flow and risk index data for the project, as shown below. Initial Investment CF0 E $15,000 F $11,000 G$19,000 Year

Trade Credit: NPV, Factors Affecting Collection Period

You work for a company that extends trade credit to customers. Currently your variable cost ratio is 65% and the annual rate of interest set by the company is 4% and the terms are a 30-day net. It costs you $0.07 on the dollar for administrative costs. Your monthly credit extension is $400,000 and you know (based on previous ca

Investment alternatives using the Payback and NPV methods

See attached file. A client has 3 competing investment alternatives which are anticipated to yield returns as indicated in the table provided below. You are to advise the client on the best investment having considered both the Payback and NPV methods. The NPV method will be at 10%. You will also need to write a report exp

net present value of the proposed investment

6. The following data pertain to an investment that is being considered by the management of Sublex Company: Discount rate 10% Life of the project 5 years Cost of the investment $56,865 Annual cost savings 15,000 Estimated salvage value 3,000 What is the net present value of the proposed investment? Should the project

NPV for both projects

The following are the cash flows of two projects: Year Project A Project B 0 ?$340 ?$340 1 170 240 2 170 240