Vipul b Brief Exercise 16-2 (Static) Determining net present value LO 16-2Eagle Transport Company is considering investing in two new planes that are expected to generate combined cash inflows of$250,000 per year. The planes' combined purchase price is $1,700,000. The expected life and salvage value of each plane are 10years and $50,000, respectively. Eagle Transport has an average cost of capital of 5 percent. (PV of $1 and PVA of $1)Required:Calculate the net present value of the investment opportunity.Note: Round your intermediate calculations and final answer to 2 decimal places. Use appropriate factor(s) from the tablesprovided.Future cash inflowsSalvage valuesTotalCost of investmentNet present valuePresent value0.00

A positive net present value (NPV) indicates a potentially lucrative investment. Net Present Value…

Answered: Brief Exercise 16-2 (Static)…

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

See similar textbooks

Similar questions

Question 4 Bell Manufacturing is considering investing in a new project. Two projects have been put forward for consideration. The following information has been gathered for each. Project A Project B Initial investment £500,000 £600,000 Life of project 4 years 4 years Estimated annual cash flows: Year Project A Project B Cash flow per year 1 160,000 180,000 170,000 190,000 3 110,000 100,000 4 90,000 150,000 Resale value of project 30,000 40,000 The company estimates its cost of capital at 12% and uses straight line depreciation method for its plant and machinery. Required a) Appraise the two Project using the following methods of investment appraisal: i. Payback period ii. Accounting Rate of Return iii. Net present value b) Discuss your findings and advise the company which project they should invest in if the projects are mutually exclusive (that is only one project may be undertaken).
Porter Company is analyzing two potential investments Initial investment Net cash flow: Year 1 Year 2 Year 3 Year 4 Project X Project Y $ 75,900 $ 64,000 26,000 26,000 26,000 4,400 28,000 28,000 20,000 If the company is using the payback period method, and it requires a payback of three years or less, which project(s) should be selected? 0
Porter Company is analyzing two potential Investments. Project X $ 97,090 Initial investment Net cash flow: Year 1 Year 2 Year 3 Year 4 Multiple Choice If the company is using the payback period method, and it requires a payback of three years or less, which project(s) should be selected? O 32,500 32,500 32,500 0 Both X and Y are acceptable projects. O Project Y. Project Y $ 77,000 Project Y because it has a lower Initial Investment. Project X 5,700 34,500 34,500 25,000 Neither X nor Y is an acceptable project.
QUESTION 1 Max Ltd is trying to decide which project should be taken up, out of three possible investments. The initial investment would amount to RM250,000. Scrap value at end would be nil. Cost of capital is 9%. The net cash inflows from the three projects under consideration are: Project A Project C RM RM Period Year 1 Year 2 Year 3 Year 4 Year 5 Total Required: 50,000 60,000 70,000 80,000 100,000 360,000 Project B RM 70,000 100,000 130,000 300,000 80,000 80,000 80,000 80,000 320,000 For each possible project you are required to calculate: (a) Accounting rate of return (ARR) (b) Payback period (PP) (c) Net present value (NPV) (d) Internal rate of return (IRR) (e) Should the project be accepted? Why? Justify your answer in respect of all scenarios.
NPV Your division is considering two investment projects, each of which requires an up-front expenditure of $19 million. You estimate that the investments will produce the following net cash flows: Year Project A Project B 1 $ 5,000,000 $20,000,000 2 10,000,000 10,000,000 3 20,000,000 7,000,000 a. What are the two projects' net present values, assuming the cost of capital is 5%? Do not round intermediate calculations. Round your answers to the nearest dollar. Project A: $ Project B: $ What are the two projects' net present values, assuming the cost of capital is 10%? Do not round intermediate calculations. Round your answers to the nearest dollar. Project A: $ Project B: $ What are the two projects' net present values, assuming the cost of capital is 15%? Do not round intermediate calculations. Round your answers to the nearest dollar. Project A: $ Project B: $ b. What are the two projects' IRRS at these same costs of capital? Do not round intermediate calculations. Round your answers…
Exercise 10-5A (Algo) Determining net present value LO 10-2 Rundle Company is considering investing in two new vans that are expected to generate combined cash inflows of $30,000 per year. The vans' combined purchase price is $99,000. The expected life and salvage value of each are five years and $20,500, respectively. Rundle has an average cost of capital of 14 percent. (PV of $1 and PVA of $1) Note: Use appropriate factor(s) from the tables provided. Required a. Calculate the net present value of the investment opportunity. Note: Negative amount should be indicated by a minus sign. Round your intermediate calculations and final answer to 2 decimal places. b. Indicate whether the investment opportunity is expected to earn a return that is above or below the cost of capital and whether it should be accepted. a. Net present value b. Will the return be above or below the cost of capital? b. Should the investment opportunity be accepted?
4 Book Consider two mutually exclusive new product launch projects that Nagano Golf is considering. Assume that the discount rate for Nagano Golf is 16 percent Project A Nagano NP-30. Professional clubs that will take an initial investment of $971,000 at time 0. Next five years (years 1-5) of sales will generate a consistent cash flow of $440,000 per year. Introduction of new product at year 6 will terminate further cash flows from this project Project B Nagano NX-20 High-end amateur clubs that will take an initial investment of $700,000 at time 0. Cash flow at year 1 is $290,000. In each subsequent year, cash flow will grow at 10 percent per year. Introduction of new product at year 6 will terminate further cash flows from this project. Year e 1 2 3 4 NP-30 -$971,000 440,000 440,000 440,000 440,000 440,000 NX-20 -$700,000 290,000 319,000 350,900 Net present value Internal rate of return 385,990 424,589 Complete the following table: (Do not round intermediate calculations. Round the…
Question 2 New Age Ltd is considering investing in one of the two following projects to buy a new assembly line. Each option will last 5 years and have no salvage value at the end. The company’s required rate of return for all investment projects is 9%. The cash flows of the projects are provided below. Assembly Line 1 Assembly Line 2 Cost $386,000 $425,000 Future Cash Flows Year 1 Year 2 Year 3 Year 4 Year 5 136 000 213 000 283 000 215 000 175 000 197 000 184 000 186 000 265 000 263 000 Required: Identify which option of assembly line the company should accept based on the NPV method (Note: Please round up the result of each calculation of PV to 2 decimal places only for simplification) Identify which option of assembly line the company should accept based on the Profitability Index method.
K NPV for varying costs of capital Le Pew Cosmetics is evaluating a new fragrance-mixing machine. The machine requires an initial investment of $320,000 and will generate cash inflows of $61,850 per year for 8 years. If the cost of capital is 13%, calculate the net present value (NPV) and indicate whether to accept or reject the machine. The NPV of the project is $ (Round to the nearest cent.) Should this project be accepted? (Select the best answer below.) O No O Yes
K All techniques Rieger International is evaluating the feasibility of investing $87,000 in a piece of equipment that has a 5-year life. The firm has estimated the cash inflows associated with the proposal as shown in the following table: The firm has a cost of capital of 8%. a. Calculate the payback period for the proposed investment. b. Calculate the discounted payback period for the proposed investment. c. Calculate the net present value (NPV) for the proposed investment. d. Calculate the probability index for the proposed investment. e. Calculate the internal rate of return (IRR) for the proposed investment. f. Calculate the modified internal rate of return (MIRR) for the proposed investment. g. Evaluate the acceptability of the proposed investment using NPV, IRR, and MIRR. Data table (Click on the icon here in order to copy the contents of the data table below into a spreadsheet.) Year (t) Cash inflows (CF₂) 1 $25,000 2345 $25,000 $30,000 $25,000 $20,000 w an ex Print MacBook Air…
X construction is considering two projects to develop. The estimated net cash flow from each project is as follows:YearProject X ($)Project Y ($)1110,00075,000265,000150,0003100,00060,0004115,00055,000535,00060,000Total425,000400,000Each project requires an investment of $ 200,000. The cost of capital is 10%.Require toa) Calculate Net Present Value, Payback period, ARR and Profitability Index.b) Which Project is to be recommended to develop based on NPV, Profitability Index, Payback period and ARR? Suggest
a. Year 0 cash flow Year 1 cash flow Year 2 cash flow Year 3 cash flow b. NPV Down Under Boomerang, Inc., is considering a new three-year expansion project that requires an initial fixed asset investment of $2.97 million. The fixed asset falls into the three-year MACRS class. The project is estimated to generate $2,170,000 in annual sales, with costs of $847,000. The project requires an initial investment in net working capital of $390,000, and the fixed asset will have a market value of $255,000 at the end of the project. a. If the tax rate is 24 percent, what is the project’s Year 1 net cash flow? Year 2? Year 3? Table 8.3. (A negative answer should be indicated by a minus sign. Do not round intermediate calculations and enter your answers in dollars, not millions of dollars, rounded to 2 decimal places, e.g., 1,234,567.89.) b. If the required return is 9 percent, what is the project's NPV? (Enter your answer in dollars, not millions of…

SEE MORE QUESTIONS

Recommended textbooks for you

FINANCIAL ACCOUNTING

Accounting

ISBN:

9781259964947

Author:

Libby

Publisher:

MCG

Accounting

ISBN:

9781337272094

Author:

WARREN, Carl S., Reeve, James M., Duchac, Jonathan E.

Publisher:

Cengage Learning,

Accounting Information Systems

Accounting

ISBN:

9781337619202

Author:

Hall, James A.

Publisher:

Cengage Learning,

FINANCIAL ACCOUNTING

Accounting

ISBN:

9781259964947

Author:

Libby

Publisher:

MCG

Accounting

ISBN:

9781337272094

Author:

WARREN, Carl S., Reeve, James M., Duchac, Jonathan E.

Publisher:

Cengage Learning,

Accounting Information Systems

Accounting

ISBN:

9781337619202

Author:

Hall, James A.

Publisher:

Cengage Learning,

Horngren's Cost Accounting: A Managerial Emphasis…

Accounting

ISBN:

9780134475585

Author:

Srikant M. Datar, Madhav V. Rajan

Publisher:

PEARSON

Intermediate Accounting

Accounting

ISBN:

9781259722660

Author:

J. David Spiceland, Mark W. Nelson, Wayne M Thomas

Publisher:

McGraw-Hill Education

Financial and Managerial Accounting

Accounting

ISBN:

9781259726705

Author:

John J Wild, Ken W. Shaw, Barbara Chiappetta Fundamental Accounting Principles

Publisher:

McGraw-Hill Education

SEE MORE TEXTBOOKS