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# Net Present Value (NPV)

### Negative NPV project

In a capital budgeting decision if a firm uses the net present value method and a 12% discount rate what does a negative net present value indicate: a. the proposals rate of return exceeds 12% b. the proposals rate of return is less then the minimum rate required c. the proposal earns a rate of return between 10-12% d. non

### NPV Calculations for Expanding Company.

I need help calculating the attached spreadsheet, If I subtract the metrics in red from the metrics in black how will this calucate the required values for the PV and NPV? I know the PV is the present value factor, but how do I find the PV cash flows to calculate the NPV? A firm is going to expand into 5 domestic markets (Chic

### NPV Analyses

Based on the following data/assumptions: Refurbishment an Existing Boat 1. Useful life 20 years 2. Rehabilitation costs \$115,000 3. Estimated value of existing new spare parts that could be used to offset the rehabilitation costs \$43,500 4. Dismantling and scrapping of old parts offset by salvage 5. Straight-line deprec

### Net Present Value vs. IRR

Explain the Net Present Value (NPR) concept. What values must the NPR take on for the project to be acceptable at the promise of a return greater than the required rate of return? Contrast this method to Internal Rate of Return.

### John Doe has recently been appointed as Chief Risk Officer for Tutale(pty) Ltd

1. John Doe has recently been appointed as Chief Risk Officer for Tutale(pty) Ltd, however, John realised that the company rely heavily on fixed-interest bearing debt for financing, moreover,the rare earth stone business may not be sustainable in the long run.Kindly advice John on what to advice management on the financial and b

### Capital Budgeting : NPV Method

Problem 1 The president of E-Games, an online gaming company, is considering the purchase of some equipment used for the development of new games. The cost is \$400,000, the economic life and the recovery period are both 5 years, and there is no terminal disposal value. Annual pretax cash inflows from operations would increase

### 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

### A manufacturing company is thinking of launching a new product

A manufacturing company 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 45% of sales. Indirect incremental costs are estimated at \$95,000 a year. The project requires a new pla

### 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

### Compute Net Present Value

Sealand Corporation is considering acquiring a newer, more modern machine. The machine, which requires an initial outlay of \$3 million, will generate cash flows of \$1 million at the MIDDLE of each year for 5 years. Investors could earn 10% elsewhere in opportunities of equal risk. Compute the net present value and explain what i

### ABC Company is considering the purchase of a new machine for \$76,000.

ABC Company is considering the purchase of a new machine for \$76,000. The machine would generate a net cash inflow of \$23,214 per year for 5 years. At the end of 5 years, the machine would have no salvage value. The company's cost of capital is 12 percent. The company uses straight-line depreciations. The present value factors o

### Pargon Sports: Prepare an analysis of the costs and benefits of Paragon sports' Propose customer-services improvements (Ignore taxes).

Pargon Sports, a major sporting goods retailer, is considering upgrading its customer-support activities by improving online databases and training customer-service personnel. Consider the following data: Data Input Discount rate 10% Annual sales \$15,000,000 Average cost of sales as % of sales 60%

### Why should issuance costs and mispricing costs be included in the assessment of the project's value? How do you include them?

Why should issuance costs and mispricing costs be included in the assessment of the project's value? How do you include them? Book: Corporate Finance: The Core, 2nd ed.

### 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

### Capital Budgeting

Break-even cash inflows and risk Pueblo Enterprises is considering investing in either of two mutually exclusive projects, X and Y. Project X requires an initial investment of \$30,000; project Y requires \$40,000. Each project's cash inflows are 5-year annuities: Project X's inflows are \$10,000 per year; project Y's are \$15,000.

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

### This determines if the scenario is a negative-NPV project.

The treasurer of a large firm is considering investing \$50 million in 10-year Treasury otes that yield 8.5%. The firm's WACC is 15%. Is this a negative-NPV project?

### 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.

### Problem: 11-49. Inflation capital budgeting. corporate tax division of a major public relations firm

Inflation and Capital Budgeting Problem: 11-49 The head of the corporate tax division of a major public relations firm has proposed investing \$295,000 in personal computers for the staff. The useful life and recovery period for the computers are both 5 years. The firm uses MARC's depreciation. There is no terminal salvage

### Unequal lives of planes

Shao Airlines is considering two alternative planes. Plane A has an expected life of 5 years, will cost \$100 million, and will produce net cash flows of \$30 million per year. Plane B has a life of 10 years, will cost \$132 million, and will produce net cash flows of \$25 million per year. Shao plans to serve the route for 10 years

### Simulation Analysis

You have estimated the expected NPV from a project to be \$3 million with a standard deviation of \$4 million. The distribution of the possible NPV is approximately normal. If you are willing to accept a 25 percent chance of incurring a negative NPV on the project, should it be undertaken?

### 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

### Simulation Analysis and Probability

A simulation model similar to the one described in this chapter has been constructed by The Great Basin Corporation to evaluate the largest of its new investment proposals. After many iterations of the model, Great Basin's management has arrived at an expected net present value for Project A of \$1.0 million. The standard deviati

### 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