Fin 433 Case 2

Barnard Manufacturing is considering three capital investment proposals. At this time, Barnard only has funds available to pursue one of the three investments. |(Click the icon to review the proposals.) Which investment should Barnard pursue at this time? Why? Since each investment requires a different initial investment and presents a positive NPV, Barnard Manufacturing should use the profitability index to compare the profitability of each investment. Select the labels for the evaluation measure you determined above. Enter the amounts into the formula, beginning with Equipment A, and calculate the amount you will use to evaluate each investment. (Enter all amounts as positive numbers. Round the evaluation measure to two decimal places, X.XX.) - X Data Table Equipment A Equipment B Equipment C Present value of net cash inflows 1,832,478 S 1,865,471 $ 2,169,724 (1,650,881) (1,516,643) (1,749,777) Initial Investment 181,597 S 348,828 S 419,947 NPV Print Done

A group of venture investors is considering putting money into Lemma Books, which wants to produce a new reader for electronic books. The variable cost per unit is estimated at $248, the sales price would be set at twice the VC/unit, and fixed costs are estimated at $357730. The investors will put up the funds if the project is likely to have an operating income of $406340 or more. What sales volume would be required in order to meet the minimum profit goal? (Hint: Use the break-even formula, but include the required profit in the numerator.) Note: Answers should be whole numbers (no decimals) Answer:

Office of Business Administration tells you that Villa Apartment has a project to expand the current operations and the estimated internal rate of return is 12.2%. The Villa Apartment's WACC is 11.8%. Based on all of these, you can safely conclude the: O appropriate discount rate for the project is between 11.8% and 12.2%. O expansion should be undertaken as it has a positive net present value. O project has slightly more risk than the firm's current operations. O project will have a lower debt-equity ratio than the firm's current operations.

Your boss wants you to conduct a sensitivity and scenario analysis to determine whether the following project is a winner. You are entering an established market, and you know the market size will be 1,100,000 units. You are unsure of your exact market share, the price you will be able to charge, and your variable cost per unit, but have determined a range of possible values for each (in the table below). Your initial investment cost is $150 million, and that investment will depreciate in straight-line form over the 20-year life of the project. There are no new NWC requirements, and there will be no salvage value at the end of the 20 years. The tax rate is 35%. The discount rate is 18%. a) Use the following table to conduct a full sensitivity analysis for the project. Make sure to include the NPV for the expected outcome as part of the full sensitivity analysis. Also add the best- and worst-case scenarios to the full sensitivity analysis. Show all of your work (written out, not an…

Last year, a marketing study costing $40,000 was done on the feasibility of a new instant dry nail polich. You are now tasked with estimating the cash flows for this project and will ultiamtely make an accept or reject decision. Which of the following is true?     This is an externality and should be included This is an externality and should not be included This is an opportunity cost and should be included This is an opportunity cost and should not be included This is an sunk cost and should be included This is an sunk cost and should not be included

Managers are evaluating two independent projects. Project X has a NPV of $282,500 and a profitability index of 2.1. Project Y has a NPV of $ 320,000 and a profitability index of 1.7. Which of the following statements are correct? Multiple select question. If funds are not limited, the company should only invest in the project Y. If funds are limited, Project Y should be selected because it has the highest net present value. If funds are limited, Project X should be selected because it has the highest profitability index. If funds are not limited, the company should consider investing in both projects.

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Ranger Corporation has decided to invest in renewable energy sources to meet part of its energy needs for production. It is considering solar power versus wind power. After considering cost savings as well as incremental revenues from selling excess electricity into the power grid, it has determined the following. Present value of annual cash flows Initial investment Net present value $ Profitability index Determine the net present value and profitability index of each 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 answers to O decimal places, e.g. 125 and profitability index answers to 2 decimal places, e.g. 15.25.) Solar $52,580 $39,500 Solar Which energy source should it choose? The company should choose solar Wind $128,450 $105,300 $ energy source. Wind

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These questions are intended for self-study. Click the [solution] box to reveal a detailed solution. Two mutually exclusive investment projects have been presented to your company. Project A’s rate of return is 6%, and Project B’s rate of return is 8%. The cost of Project A is less than the cost of Project B. Incremental analysis yields a rate of return of 4%. If both alternatives have the same useful life and the MARR is 5%, which project should be chosen?

Martin Weir is evaluating a new project to determine viability for Jonathon's Restaurant's. As part of the new Jonathon's PMO, Marty is responsible for preparing project justifications and he must evaluate the project's cash flows and investment potential. As a first step, Marty developed a table of revenues and investments (see below) that he plans to use in calculating a variety of performance metrics including NPV. Marty understands that a project's discount rate may not be constant throughout the life of the project and he plans to use 0.32 as the initial discount rate, switching to 0.19 beginning in year 4 to more accurately represent the cash costs and imputed risk over time. Assume all cash flows occur at the end of the specified year and calculate all cash flow values and discounted cash flow values to three decimal places. Round discounted values to 3 decimal places before performing subsequent calculations. investment Reveune 13.8 0 14.9 20.3 12.3 27.5 17.6 24.9…

1. Calvulate the internal rate of return(IRR) of each project and based on this criterion. Indicate which project you would recommend or acceptance.

The Michner Corporation is trying to choose between the following two mutually exclusive design projects: Please help me solve this problem using Excel.

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The Weiland Computer Corporation is trying to choose between the following mutually exclusive design projects, P1 and P2: Year 0 1 2 3 Cash flows (P1) -$53,000 27,000 27,000 27,000 Cash flow (P2) -$16,000 9,100 9,100 9,100 If the discount rate is 10 percent and the company applies the profitability index (PI) decision rule, which project should the firm accept? If the firm applies the Net Present Value (NPV) decision rule, which project should it take? Are your answers in (a) and (b) different? Explain why?

Zymase is a biotechnology start-up firm. Researchers at Zymase must choose one of three different research strategies. The payoffs (after-tax) and their likelihood for each strategy are shown below. The risk of each project is diversifiable. Strategy Probability (%) Payoff ($ million) A 100 65 В 50 120 50 C 10 270 90 30 a. Which project has the highest expected payoff? b. Suppose Zymase has debt of $30 million due at the time of the project's payoff. Which strategy has the highest expected payoff for equity holders? c. Suppose Zymase has debt of $120 million due at the time of the project's payoff. Which strategy has the highest expected payoff for equity holders? d. If management chooses the strategy that maximizes the payoff to equity holders, what is the expected agency cost to the firm from having $30 million in debt due? What is the expected agency cost to the firm from having $120 million in debt due? a. Which project has the highest expected payoff? (Select the best choice…

By comparison, the NPV of this project is (-1,516,078, -1,378,253, -1,309,340). On the basis of this evaluation criterion, Purple Whale Foodstuffs Inc. should (not invest, invest) in the project because the project (will, will not) increase the firm’s value.    A project with a negative NPV will have a PI that is (less than 1.0, equal to 1.0, greater than 1.0) ; when it has a PI of 1.0, it will have an NPV (equal to $0, less than $0, greater than $0) Fill in the blank.

Trovato Corporation is considering a project that would require an investment of $65,000. No other cash outflows would be involved. The present value of the cash inflows would be $83,200. The profitability index of the project is closest to (Ignore income taxes.):   Multiple Choice   0.72   0.28   1.28   0.22

The Michner corporation is trying is trying to choose between the following 2 mutually exclusive design project:   Cash Flow 1 Cash Flow 2 Year 0: -82000 -21700 Year 1: 37600 11200 Year 2: 37600 11200 Year 3: 37600 11200   If the required return is 10% and the company applies the profitability index decision rule, which project should the firm accept? If the company applies the NPV decision rule, which project should it take?  why are  a & b are different

Jefferson International is trying to choose between the following two mutually exclusive design projects: Cash Flow (B) -$38,000 Year Cash Flow (A -$75,000 32.400 17,800 30,200 14,200 3 36.600 19.800 The required return is 12 percent. If the company applies the profitability index (PI) decision rule, which project should the firm accept? If the company applies the NPV decision rule, which project should it take? Given your first two answers, which project should the firm actually accept? Project A; Project B; Project A O Project A; Project B; Project B O Project B; Project A; Project A O Project B; Project A; Project B O Project B; Project B, Project B