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17 Jun 2019

An investment project requires a net investment of $100,000. The project is expected to generate annual net cash inflows of $28,000 for the next 5 years. The firmâs cost of capital is 12 percent. Your company wants you to use the NPV to determine whether or not to invest in the project. Base on this information you NPV is closest to: Select one: a. c..$ 940 b. b. $40,000 c. d. $77,884 d. a. 100,940

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Collen VonLv2

20 Jun 2019

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Problem 1

All Techniques- Decision among mutually exclusive investments. Pound industries is attempting to select the best of three mutually exclusive projects. The initial investment and after tax cash inflows associated with these projects are shown in the following table

Cash flow Project A Project B Project C

Initial investment (CF) $80,000 $110,000 $110,000

Cash inflows (CF), T=1 to 5 $25,000 $37,000 $38,500

Calculate the payback period for each project

Calculate the net present value (NPV) of each project, assuming that the fimrm has a cost of capital equal to 11%

Calculate the internal rate of return (IRR) for each project

Indicate which project you would recommend

A-the payback period of project A is ___years

the payback period of project B is ___years

the payback period of project C is ___years

B-the NPV of project A is $____

the NPV of project B is $____

the NPV of project C is $____

C- The IRR of project A is _____

The IRR of project B is _____

The IRR of project C is _____

D- which project would you recommend?

Project A

Project B

Project C

Problem 2

IRR, investment life, and cash inflows Oak enterprise accepts projects earning more than the firms 15% cost of capital. Oak is currently considering a 10 year project that provides annual cash inflows of $50,000 and requires an initial investment of $328,300

Deter the IRR of the project is it acceptable

Assuming that the cash inflos continue to be $50,000 per year how many additional years would the flows have to continue to make the project acceptable (that is, to make it have an IRR of 15%?

A. the project IRR is ___%

Is the project acceptable?

Yes or no

B. assuming that the cash inflows continue to be $50,000 per year the number of additional years the flows would have to continue to make the project acceptable at the 15% discount rate is ____ additional years

C) with the given life, initial investment and cost of capital the minimum annual cash inflow that the firm should accept is $______

greyswan843

(Net present value calculation) Big Steveâs, makers of swizzle sticks, is considering
the purchase of a new plastic stamping machine. This investment requires an
initial outlay of $100,000 and will generate net cash inflows of $18,000 per year for
10 years.
a. What is the projectâs NPV using a discount rate of 10 percent? Should the project be
accepted? Why or why not?
b. What is the projectâs NPV using a discount rate of 15 percent? Should the project be
accepted? Why or why not?
c. What is this projectâs internal rate of return? Should the project be accepted? Why or
why not?

byzantiumcicada574

Heywood Diagnostic Enterprises is evaluating a project with the following net cash flows and
probabilities:

Year Prob=0.2 Prob=0.6 Prob=0.2
0 -$100,000 -$100,000 -$100,000
1 $20,000 $30,000 $40,000
2 $20,000 $30,000 $40,000
3 $20,000 $30,000 $40,000
4 $20,000 $30,000 $40,000
5 $30,000 $40,000 $50,000

The Year 5 values include salvage value. Heywood's corporate cost of capital is 10 percent.
a. What is the project's expected (i.e., base case) NPV assuming average risk? (Hint: The base case net cash flows are the expected cash flows in each year.)
b. What are the project's most likely, worst, and best case NPVs?
c. What is the project's expected NPV on the basis of the scenario analysis?
d. What is the project's standard deviation of NPV?
e. Assume that Heywood's managers judge the project to have higher-than-average risk. Furthermore, the company's policy is to adjust the corporate cost of capital up or down by 3 percentage points to account for differential risk. Is the project financially attractive?

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