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# Net Present Value (NPV)

### Capital Budgeting; NPV; Calculating Cash Flows

Should Diagnostic Chemicals Proceed with the Development of the DNA-Based Genetic Testing Instrument? Francis Erkhart, a local scientist, has recently invented a very promising and relatively simple DNA-based genetic testing instrument that allows doctors to -threatening diseases. He has approached Diagnostic Chemical

### net present value (NPV) of the lease

A firm is considering leasing a new system. The lease lasts for 5 years. The lease calls for 6 payments of \$300,000 per year with the first payment occurring at lease inception. The system would cost \$1,050,000 to buy and would be straight-line depreciated to a zero salvage value. The actual salvage value is zero. The firm can b

### Pleasant Company: Payback period, accounting rate of return, net present value

Pleasant Company has an opportunity to invest in one of two new projects. Project Y requires a \$700,000 investment for new machinery with a four- year life and no salvage value. Project Z requires a \$700,000 investment for new machinery with a three- year life and no salvage value. The two projects yield the following predicted

### Payback Period, Accounting Rate of Return, and NPV

Elite Company is planning to add a new product to its line. To manufacture this product, the company needs to buy a new machine at a \$ 300,000 cost with an expected four- year life and a \$20,000 salvage value. All sales are for cash, and all costs are out of pocket except for depreciation on the new machine. Additional informati

### Geico Problem: Capital Budgeting Decisions

Geico Geico is considering expanding an existing plant on a piece of land it already owns. The land was purchased 15 years ago for \$325,000, and its current market appraisal is \$820,000. A capital budgeting analysis shows that the plant expansion has a net present value of \$130,000. The expansion will cost \$1.73 million, and t

### Accuracy of using the NPV to evaluate particular new projects

How accurate do you think a company's estimates of the net present value of a proposed project are? Refer to both the initial investment and to the components of the cash flow: revenues, operating expenses, depreciation, taxes, and the cost of capital to use for the computation of the present value. Keep in mind that NPV is t

### Textile Mills: What to pay for a share of stock; NPV of a project

3. The common stock of Textile Mills pays an annual dividend of \$1.65 a share. The company has promised to maintain a constant dividend even though economic times are tough. How much are you willing to pay for one share of this stock if you want to earn a 12 percent annual return? A) \$13.75 B) \$14.01 C) \$14.56

### 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

### Financial Problem: Net Present Value and Ranking Projects

Please help with following assignment: See attached file for proper format. 1 The partnership of Lou and Bud is considering three long-term capital investment proposals. Relevant data on each project are as follows. Project

### 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

### NPV

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