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Net Present Value Use Exhibit 12B.1 and Exhibit 12B.2. Each of the following scenarios is independent. Assume that all cash flows are after-tax cash flows. Campbell Manufacturing is considering the purchase of a new welding system. The cash benefits will be $480,000 per year. The system costs $2,700,000 and will last 10 years. Evee Cardenas is interested in investing in a women’s specialty shop. The cost of the investment is $270,000. She estimates that the return from owning her own shop will be $52,500 per year. She estimates that the shop will have a useful life of 6 years. Barker Company calculated the NPV of a project and found it to be $63,900. The project’s life was estimated to be 8 years. The required rate of return used for the NPV calculation was 10%. The project was expected to produce annual after-tax cash flows of $135,000. Required: 1.  Compute the NPV for Campbell Manufacturing, assuming a discount rate of 12%. If required, round all present value calculations to the…

Net Present Value Use Exhibit 12B.1 and Exhibit 12B.2. Each of the following scenarios is independent. Assume that all cash flows are after-tax cash flows. Campbell Manufacturing is considering the purchase of a new welding system. The cash benefits will be $480,000 per year. The system costs $2,700,000 and will last 10 years. Evee Cardenas is interested in investing in a women’s specialty shop. The cost of the investment is $270,000. She estimates that the return from owning her own shop will be $52,500 per year. She estimates that the shop will have a useful life of 6 years. Barker Company calculated the NPV of a project and found it to be $63,900. The project’s life was estimated to be 8 years. The required rate of return used for the NPV calculation was 10%. The project was expected to produce annual after-tax cash flows of $135,000. Required: 1.  Compute the NPV for Campbell Manufacturing, assuming a discount rate of 12%. If required, round all present value calculations to the…

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2. Incremental costs - Initial and terminal cash flow Consider the case of Alexander Industries: Alexander Industries is considering a project that requires an investment in new equipment of $3,570,000. Under the new tax law, the equipment is eligible for 100% bonus depreciation at t = 0 so the equipment will be fully depreciated at the time of purchase. Alexander estimates that its accounts receivable and inventories need to increase by $680,000 to support the new project, some of which is financed by a $272,000 increase in spontaneous liabilities (accounts payable and accruals). The company's tax rate is 25%.   A. The after-tax cost of Alexander’s new equipment is                      .   B. Alexander’s initial net investment outlay is                            .   C. Suppose Alexander’s new equipment is expected to sell for $400,000 at the end of its four-year useful life, and at the same time, the firm expects to recover all of its net operating working capital…

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Net Present Value and Competing Projects Spiro Hospital is investigating the possibility of investing in new dialysis equipment. Two local manufacturers of this equipment are being considered as sources of the equipment. After-tax cash inflows for the two competing projects are as follows: Year Puro Equipment Briggs Equipment   1 $320,000 $120,000   2   280,000   120,000   3   240,000   320,000   4   160,000   400,000   5   120,000   440,000     Both projects require an initial investment of $560,000. In both cases, assume that the equipment has a life of 5 years with no salvage value. Required: Round present value calculations and your final answers to the nearest dollar. 1.  Assuming a discount rate of 16%, compute the net present value of each piece of equipment. Puro equipment: $fill in the blank  Briggs equipment: $fill in the blank  2.  A third option has surfaced for equipment purchased from an out-of-state supplier. The cost is also $560,000, but this…

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