Haresh Cullumber Company is considering a long-term investment project called ZIP. ZIP will require an investment of $128,300. It will have auseful life of 4 years and no salvage value. Annual cash inflows would increase by $80,300, and annual cash outflows would increase by$40,300. The company's required rate of return is 9%. Click here to view the factor table.Calculate the net present value on this project. (If the net present value is negative, use either a negative sign preceding thenumber eg -45 or parentheses eg (45). Round present value answer to 0 decimal places, e.g. 125. For calculation purposes,use 5 decimal places as displayed in the factor table provided.)Net present valueWhether this project should be accepted?The project should be

Net present value of the project means difference of present value of cash inflows and present value…

ullumber Company is considering a long-term investment project called ZIP ZIP will require an investment of $128,300. It will F seful life of 4 years and no salvage value. Annual cash inflows would increase by $80,300, and annual cash outflows would increa 40,300. The company's required rate of return is 9%. Click here to view the factor table. alculate the net present value on this project. (If the net present value is negative, use either a negative sign preceding the

ullumber Company is considering a long-term investment project called ZIP ZIP will require an investment of $128,300. It will F seful life of 4 years and no salvage value. Annual cash inflows would increase by $80,300, and annual cash outflows would increa 40,300. The company's required rate of return is 9%. Click here to view the factor table. alculate the net present value on this project. (If the net present value is negative, use either a negative sign preceding the

Cornerstones of Cost Management (Cornerstones Series)

4th Edition

ISBN:9781305970663

Author:Don R. Hansen, Maryanne M. Mowen

Publisher:Don R. Hansen, Maryanne M. Mowen

Chapter19: Capital Investment

Section: Chapter Questions

Problem 28P: Friedman Company is considering installing a new IT system. The cost of the new system is estimated...

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Roberts Company is considering an investment in equipment that is capable of producing more efficiently than the current technology. The outlay required is 2,293,200. The equipment is expected to last five years and will have no salvage value. The expected cash flows associated with the project are as follows: Required: 1. Compute the projects payback period. 2. Compute the projects accounting rate of return. 3. Compute the projects net present value, assuming a required rate of return of 10 percent. 4. Compute the projects internal rate of return.
Jasmine Manufacturing is considering a project that will require an initial investment of $52,000 and is expected to generate future cash flows of $10,000 for years 1 through 3, $8,000 for years 4 and 5, and $2,000 for years 6 through 10. What is the payback period for this project?
Friedman Company is considering installing a new IT system. The cost of the new system is estimated to be 2,250,000, but it would produce after-tax savings of 450,000 per year in labor costs. The estimated life of the new system is 10 years, with no salvage value expected. Intrigued by the possibility of saving 450,000 per year and having a more reliable information system, the president of Friedman has asked for an analysis of the projects economic viability. All capital projects are required to earn at least the firms cost of capital, which is 12 percent. Required: 1. Calculate the projects internal rate of return. Should the company acquire the new IT system? 2. Suppose that savings are less than claimed. Calculate the minimum annual cash savings that must be realized for the project to earn a rate equal to the firms cost of capital. Comment on the safety margin that exists, if any. 3. Suppose that the life of the IT system is overestimated by two years. Repeat Requirements 1 and 2 under this assumption. Comment on the usefulness of this information.
Markoff Products is considering two competing projects, but only one will be selected. Project A requires an initial investment of $42,000 and is expected to generate future cash flows of $6,000 for each of the next 50 years. Project B requires an initial investment of $210,000 and will generate $30,000 for each of the next 10 years. If Markoff requires a payback of 8 years or less, which project should it select based on payback periods?
Falkland, Inc., is considering the purchase of a patent that has a cost of $50,000 and an estimated revenue producing life of 4 years. Falkland has a cost of capital of 8%. The patent is expected to generate the following amounts of annual income and cash flows: A. What is the NPV of the investment? B. What happens if the required rate of return increases?
Gina Ripley, president of Dearing Company, is considering the purchase of a computer-aided manufacturing system. The annual net cash benefits and savings associated with the system are described as follows: The system will cost 9,000,000 and last 10 years. The companys cost of capital is 12 percent. Required: 1. Calculate the payback period for the system. Assume that the company has a policy of only accepting projects with a payback of five years or less. Would the system be acquired? 2. Calculate the NPV and IRR for the project. Should the system be purchasedeven if it does not meet the payback criterion? 3. The project manager reviewed the projected cash flows and pointed out that two items had been missed. First, the system would have a salvage value, net of any tax effects, of 1,000,000 at the end of 10 years. Second, the increased quality and delivery performance would allow the company to increase its market share by 20 percent. This would produce an additional annual net benefit of 300,000. Recalculate the payback period, NPV, and IRR given this new information. (For the IRR computation, initially ignore salvage value.) Does the decision change? Suppose that the salvage value is only half what is projected. Does this make a difference in the outcome? Does salvage value have any real bearing on the companys decision?
Cullumber Company is considering a long-term investment project called ZIP. ZIP will require an investment of $136,200. It will have a useful life of 4 years and no salvage value. Annual cash inflows would increase by $80,000, and annual cash outflows would increase by $38,500. The company's required rate of return is 8%. Click here to view the factor table. Calculate the net present value on this project. (If the net present value is negative, use either a negative sign preceding the number eg -45 or parentheses eg (45). Round present value answer to 0 decimal places, e.g. 125. For calculation purposes, use 5 decimal places as displayed in the factor table provided.) Net present value 1250
Vaughn Company is considering a long-term investment project called ZIP. ZIP will require an investment of $122,200. It will have a useful life of 4 years and no salvage value. Annual cash inflows would increase by $79,700, and annual cash outflows would increase by $39,000. The company's required rate of return is 12%. Click here to view PV table. Calculate the net present value on this project. (If the net present value is negative, use either a negative sign preceding the number eg -45 or parentheses eg (45). Round present value answer to 0 decimal places, e.g. 125. For calculation purposes, use 5 decimal places as displayed in the factor table provided.) Net present value Whether this project should be accepted? The project should be
Wayne Company is considering a long-term investment project called ZIP. ZIP will require an investment of $125,600. It will have a useful life of 4 years and no salvage value. Annual cash inflows would increase by $80,500, and annual cash outflows would increase by $42,000. The company’s required rate of return is 8%. Click here to view PV table.Calculate the net present value on this project. (If the net present value is negative, use either a negative sign preceding the number eg -45 or parentheses eg (45). Round present value answer to 0 decimal places, e.g. 125. For calculation purposes, use 5 decimal places as displayed in the factor table provided.) Net present value ________? Whether this project should be accepted? The project should be ACCEPTED OR DECLINED???? .
Pharoah Company is considering a long-term investment project called ZIP. ZIP will require an investment of $123,338. It will have a useful life of 4 years and no salvage value. Annual cash inflows would increase by $82,500, and annual cash outflows would increase by $41,250. The company's required rate of return is 12%. Click here to view the factor table. Calculate the internal rate of return on this project. (Round answers to O decimal places, e.g. 15%.) Internal rate of return on this project is between Determine whether this project should be accepted? The project be accepted. % and %.
Carla Vista Company is considering a long-term investment project called ZIP. ZIP will require an investment of $118,665. It will have a useful life of 4 years and no salvage value. Annual cash inflows would increase by $81,000, and annual cash outflows would increase by $40,500. The company's required rate of return is 12%. Click here to view the factor table. Calculate the internal rate of return on this project. (Round answers to whole number (e.g., 15%).) Internal rate of return on this project is between Determine whether this project should be accepted? % and %. The project should be accepted.
Sheridan Company is considering a long-term investment project called ZIP. ZIP will require an investment of $134,000. It will have a useful life of four years and no salvage value. Annual cash inflows would increase by $79,000, and annual cash outflows would increase by $38,000. In addition, the company's required rate of return is 9%. Click here to view the factor table. (a) Calculate the net present value on this project. (If the answer is negative, use either a negative sign preceding the number e.g. -5,275 or parentheses e.g. (5,275). For calculation purposes, use 5 decimal places as displayed in the factor table provided, e.g. 1.25124 and final answer to O decimal places, e.g. 5,275.) Net present value $ Identify whether the project should be accepted or rejected. The project should be (b) Calculate the internal rate of return on this project. (Round answer to 1 decimal place, e.g. 5.2%) Internal rate of return % Identify whether the project should be accepted or rejected. The…