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Net Present Value (NPV)

Calculate NPV and IRR values for the given projects.

XYZ is evaluating two mutually exclusive projects with the following net cash flows: Project A 0 years=-$2000 1 year =$300 2 year=$500 3 year=$800 4 year=$1200 Project B 0 years=-$2000 1 year =$1000 2 year=$800 3 year=$500 4 year=$200 1) XYZ's WACC is 10.3% and both projects have the same risk as the firms

Compute the NPV; should project be accepted

Lynch's Bakery is planning on a addition. It will have an initial cost of $25,000 and expects to receive at the end of each year, including year 1, $1,000 for 5 years. It has a 15% cost of capital. a) Compute the net present value b) Should the project be accepted?

Net present value of a project

What is the net present value of a project with the following: -initial cost of fixed assets is $90,000 which will be worthless at the end of the project -will generate cash flows of $40,000 per year for 5 years -additional net working capital of $5,000 is required over the life of the project -required rate of return is 1

Operating cash flow and net present value

A new project requires an initial investment in fixed assets of $40,000. These assets will have a salvage value of $10,000 at the end of the 5 year project after being straight line depreciated over the 5 year period. The project will result in a $35,000 revenue increase and cost the company $22,000 each year. Working capital wi

Net Present Value in capital budgeting techniques: Proposal

Determine the proposal's appropriateness and economic viability. Assume spending occurs on the first day of each year and benefits or savings occurs on the last day. Assume the discount rate or weighted average cost of capital is 10%. Ignore taxes and depreciation. Proposal: New Factory A company wants to build a new fa

Metro Video Case Study: Two proposal Analysis

Shown below is the current monthly income statement of Metro Video, by profit centers: METRO VIDEO Income Statement by Profit Centers For the Month Ended April 30, 20__ On the basis of this information, compute the increase in monthly income from operations that may be expected to result from each of the following a

Calculating the Present Value of Given Annuity

An investment offers $3,800 per year for 12 years, with the first payment occurring one year from now. If the required return is 10 percent, the present value of the investment is $? If the payments occurred for 39 years, the present value of the investment would be $? If the payments occurred for 79 years, the present value of

Impact of inflation on investments: NPV of investment

You are interest in an investment project that costs $7,500 initially. The investment has a 5-year horizon and promises future end-of-year cash inflows of $2,000, $2,000, $2,000 $1,500 and $1,500, respectively. Your current opportunity cost is 6.5% per year. However, the Fed has stated that inflation may rise by 1% or may fall

Johnson Investments: Excel Integer Optimization - Maximize NPV and Optimal NPV

See attached file. Johnston Investments is considering a couple of investment possibilities. Each investment considered will draw on the capital account during each of its first 3 years. In the long run, each investment is predicted to have a positive NPV. Posted in the spreadsheet are the investment choices, its NPV's, and c

Computing Cash Payback and NPV for a Proposed Investment.

Dobbs Corporation is considering purchasing a new delivery truck. The truck has many advantages over the company's current truck (not the least of which is that it runs). The new truck would cost $56,000. Because of the increased capacity, reduced maintenance costs, and increased fuel economy, the new truck is expected to genera

NPV of proposed investment for the Tower Division of Thunder Corporation

1. On January 2, 2010, Thunder Corporation's board of directors considered the acquisition of a new line of equipment for its new Tower Division. Details surrounding the proposed investment are shown below, opportunity cost is 12.5% compounded continuously. Tower's board has asked you to evaluate N

Should the Firm Purchase the New Machine?

See the attached file. Levelhead Company is considering the purchase of a new machine which will cost $1,000,000 (including installation and freight costs). The machine has an estimated useful life of five years, after which it can be sold for $350,000. If the new machine is purchased, the company estimates that the after-tax c

Should you buy the new machine? NPV method.

The new machine will be depreciated using the straightline method over its useful life. The new machine will replace an existing machine that was bought 10 years ago for $600,000. It had an estimated useful life of 15 years and is being depreciated using the straightline method over its life. The machine could be sold for $150,0

Purchase of Two New Machines

Wompac Company is considering the purchase of a new machine and must decide between two possible machines. The relevant data associated with each machine is shown below. Machine A Machine B Initial cost $275,000 $350,000 Installation cost $20,000 $30,000 Life (years) 4 7 Increase in revenues pa $180,000 $225,000 Increase i

Find Net Present Value, Return on Investment & Break Even Point

See the attachment. Pine valley furniture recently implemented a new internship program and has begun recruiting interns from nearby university campuses. As part of this program, interns have the opportunity to work alongside a systems analysis. This shadowing opportunity provides invaluable insights into the systems analysi

Calculating the net present value of a car down payment

Calculate the present value of: a. A car down payment of $5,000 that will be required in five years, assuming an interest rate of 10%. b. A lottery prize of $10 million to be paid at the rate of $500,000 per year for 20 years, assuming an interest rate of 7%. What happens to the above calculations when the interest rate

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 55% of sales. Indirect incremental costs are estimated at $80,000 a year. The project requires a new pla

3 Questions: Measurement methods and metrics

Here are the three questions: A ____ is a specific, measurable standard against which actual performance is compared. They are used to describe costs, benefits, or the ratio between them. Metrics that deal directly with performance (e.g., sales, profits) are frequently measured by _____, which are the quantitative expressi


1.)A firm uses a single discount rate to compute the NPV of all its potential capital budgeting projects, even though the projects have a wide range of nondiversifiable risk. The firm then undertakes all those projects that appear to have positive NPVs. Briefly explain why such a firm would tend to become riskier over time.

Finance: 8 Multiple choice questions

1. A company planning to market a new model of motor scooter analyzes the effect of changes in the selling price of the motor scooter, the number of units that will be sold, the cost of making the motor scooter, the effect on Net Working Capital, and the cost of capital for the project. They predict that the break-even point fo

What is the NPV for this project?

Kinston Industries is considering investing in a machine that will cost $125,000 and will last for three years. The machine will generate revenues of $120,000 each year and the cost of goods sold will be 50% of sales. At the end of year three the machine will be sold for $15,000. The appropriate cost of capital is 10% and Kinsto

Net Present Value

A company has to make a choice between two projects because the available resources in money and kind are not sufficient to run both at the same time. Each project would take nine months and would cost $250,000. The first project is a process optimization which would result in a cost reduction of $120,000 per year. This benef

Deciding Whether to Acquire or Liquidate Procras Corporation

Sharon Scotia, CFO of Rome Industries, must decide what to do about Procras Corporation, a major customer that is technically insolvent. Rome Industries is a large plastic-injection-molding firm that produces plastic products to customer order. Procras Corporation is a major customer of Rome Industries that designs and marke

Clyne Industries - Net Present Value

Clyne Industries is considering whether it should produce its newly invented Slammin Jammin Basketball Goal Set. To bring this product to the market will require the purchase of equipment costing $600,000. Shipping and installation expenses associated with the equipment are estimated to be $50,000. In addition, net working capit

Positive NPV

What benefits does a firm receive when it accepts a project with the positive NPV? Subsequently, what factors affect interest rates, and the process of determining the appropriate discount rate for a set of cash flows?


Master 34. As a bank loan officer, you want to reference detailed columnar loan portfolio data with a list of past-due loans. Which of the following is the most effective tool for doing so? a. Pivot table b. H Lookup c. Search function d. Scatter plot e. V Lookup 35. Suppose that you are approached with an offer to pur


JB enterprises purchased a new molding machine for $75,000. The company paid $6,000 for the shipping and another $4,000 to get the machine integrated with the existing assets.The company purchased a supply of oil for $2,000. The machine was to be depreciated on a straight line basis over its expected useful life of 10 years. JB