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    Net Present Value (NPV)

    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

    Calculate Net Present Value (NPV)

    Your firm is looking at a new investment opportunity, Project Alpha, with net cash flows as flows: Net Cash Flows Project Alpha Initial Cost at T â?" 0(Now ($10,000) Cash inflow at the end of year 1 $6,000 Cash inflow at the end of year 2 $4,000 Cash inflow at the end of year 3 $2,000 Calculate project Al

    Evaluating investments

    What are the techniques used to evaluate investments and decide which projects to pursue? And how do you formulate decision rules and compare decisions based on these rules to decisions based on the NPV rule? How is the the concept of present value used in capital budgeting. Why would one accept projects with a positive NP

    NPV, forecast, changes in NPV, graphs

    Bauer Industries is an automobile manufacturer. Management is currently evaluating a proposal to build a plant that will manufacture lightweight trucks. Bauer plans to use a cost of capital 12% to evaluate this project. Based on extensive research, it has prepared the following incremental free cash projections (in millions):

    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?

    Compounding and NPV

    Need to elaborate on the concept of compounding, how to calculate the Net Present Value, and the significance of this indicator for decision-making.

    ...NPV

    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

    Finance

    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

    15-17 perpetual projects

    15-17 attached 15-17 Consider another perpetual project like the crusher described in Section 15- 1. Its initial investment is $ 1,000,000, and the expected cash inflow is $ 95,000 a year in perpetuity. The opportunity cost of capital with all- equity financing is 10%, and the project allows the firm to borrow at 7%. The tax

    NPV Conversion into Cash Today

    You run a construction firm. You have a contract to build a government office building. Building it will take one year and require an investment of $10 million today and 5 million in one year. The government will pay you $20 million upon the building's completion. Suppose the cash flow and their times of payment are certain and

    Buy vs. Lease using Net Present Value

    Top-Quality Stores, Inc., owns a nationwide chain of supermarkets. The company is going to open another store soon, and a suitable building site has been located in an attractive and rapidly growing area. In discussing how the company can acquire the desired building and other facilities needed to open the new store, Sam Watkins

    Sub-Prime Loan Company: Project's NPV for new office

    Sub-Prime Loan Company is thinking of opening a new office, and the key data are shown below. The company owns the building that would be used, and it could sell it for $100,000 after taxes if it decides not to open the new office. The equipment for the project would be depreciated by the straight-line method over the project'

    Conch Republic Electronics Case

    Conch Republic Electronics is a midsized electronics manufacturer located in Key West, Florida. The company president is Shelly Couts, who inherited the company. When it was founded over 70 years ago, the company originally repaired radios and other household appliances. Over the years, the company expanded into manufacturing an

    TexMex Food Company is considering a new salsa: What is the project's NPV?

    TexMex Food Company is considering a new salsa whose data are shown below. The equipment to be used would be depreciated by the straight-line method over its 3-year life and would have a zero salvage value, and no new working capital would be required. Revenues and other operating costs are expected to be constant over the pro

    Atlas Corp. is considering two mutually exclusive projects: Value of NPVL - NPVS

    Atlas Corp. is considering two mutually exclusive projects. Both require an initial investment of $10,000 at t = 0. Project S has an expected life of 2 years with after-tax cash inflows of $6,000 and $8,000 at the end of Years 1 and 2, respectively. Project L has an expected life of 4 years with after-tax cash inflows of $4,3

    Florida Car Wash is considering a new project: Calculate NPV

    Florida Car Wash is considering a new project whose data are shown below. The equipment to be used has a 3-year tax life, would be depreciated on a straight-line basis over the project's 3-year life, and would have a zero salvage value after Year 3. No new working capital would be required. Revenues and other operating costs

    Desai Industries is analyzing an average-risk project: Calculate expected NPV

    Desai Industries is analyzing an average-risk project, and the following data have been developed. Unit sales will be constant, but the sales price should increase with inflation. Fixed costs will also be constant, but variable costs should rise with inflation. The project should last for 3 years, it will be depreciated on a

    Cannibalization NPV Calculations

    Which statement is correct? If cannibalization is determined to exist, then this means that the calculated NPV considering cannibalization will be higher than the NPV that does not recognize these effects. If a firm is found guilty of cannibalization in a court of law, then it is judged to have taken unfair advantage of it

    Payout Policy and Capital Structure: Calculate APV

    15-6 A project cost $1 million and has a base-case NPV of exactly zero (NPV = 0). What is the projects' APV in the following cases? a. If the firm invests, it has to raise $500,000 by a stock issue. Issue costs are 15% of net proceeds. b. If the firm invests, its debt capacity increases by $500,000. The present value of i

    leasing vs buying, break-even analysis

    5.4 You want to buy a new car, but you're not sure whether you should lease it or buy it. You can buy it for $50,000, and you expect that it will be worth $20,000 after you use it for 3 years. Alternatively, you could lease it for payments of $650 per month for the 3-year term, with the first payment due immediately. The lease

    Accounting 5

    Choose the correct answer: 18. Which of the following is a true statement regarding the net present value method in capital budgeting? a. It calculates the present value of future cash flows. b. It calculates the proposal's rate of return. c. It provides the same basic information as the accounting rate of return. d. I

    Accounting 4

    Choose the correct answer: 14. In order to calculate the net present value of a proposed investment, it is necessary to know: a. the interest rate paid on funds borrowed to make the investment. b. the cash dividends paid on the stock each year. c. the cash flows expected from the investment. d. the net income expected

    Capital budget techniques NPV payback IRR

    Guillermo Furniture, a company that manufactures midgrade and high-end sofas, has just hired you as an accountant. The owner, Guillermo Navallez, has assigned you the tasks of determining which decisions provide the greatest returns. Explain how capital budget techniques (NPV, IRR, Payback period) would help you make your rec

    Using the Time Value of Money to Make Managerial Decisions

    You are considering expanding your line of equipment and apparel for high school athletic teams to include soccer teams. Based on research conducted by the marketing department, you estimate an increase in sales for your division of $150,000 per year the first 2 years and then $250,000 per year over the following 3 years. To man