4. Division D is considering two possible expansion plans. Plan A would expand a current product line at acost of $8,700,000. Expected annual net cash inflows are $1,625,000, with zero residual value at theend of 10 years. Under Plan B, Division D would begin producing a new product at a cost of$8,240,000. This plan is expected to generate net cash inflows of $1,090,000 per year for 10 years, theestimated useful life of the product line. Estimated residual value for Plan B is $1,100,000. Division Duses straight-line depreciation and requires an annual return of 10%.Compute the payback, the ARR, the NPV, and the profitability index for both plans.a.b. Compute the estimated IRR of Plan AUse Excel to verify the NPV calculations in Requirement 4(a) and the actual IRR for the two plans.How does the IRR of each plan compare with the company's required rate of return?d. Division D must rank the plans and make a recommendation to Dennison's top management teamfor the best plan. Which expansion plan should Division D choose? Why?C.S. Requirement 4. Division D is considering two possible expansion plans. Plan A would expand a current product line at a cost of $8,700,000. Expected annual net cash inflows are $1,625,000, with zero residual value at the end of10 years. Under Plan B, Division D would begin producing a new product at a cost of $8,240,000. This plan is expected to generate net cash inflows of $1,090,000 per year for 10 years, the estimated useful life of the product line.Estimated residual value for Plan B is $1,100,000. Division D uses straight-line depreciation and requires an annual return of 10%.4a. Compute the payback, the ARR, the NPV, and the profitability index for both plans.Begin by calculating the payback for both plans. (Round your answers to one decimal place, XX)PaybackPlan AyearsPlan Byears

Note: As per the bartelby guidelines, only first two parts will be answered. Given information :

4. DivisionD is considering possibi expan Ime al d cost of $8,700,000. Expected annual net cash inflows are $1,625,000, with zero residual value at the end of 10 years. Under Plan B, Division D would begin producing a new product at a cost of $8,240,000. This plan is expected to generate net cash inflows of $1,090,000 per year for 10 estimated useful life of the product line. Estimated residual value for Plan B is $1,100,000. Division D uses straight-line depreciation and requires an annual return of 10%. a. Compute the payback, the ARR, the NPV, and the profitability index for both plans. b. Compute the estimated IRR of Plan A. years, the

4. DivisionD is considering possibi expan Ime al d cost of $8,700,000. Expected annual net cash inflows are $1,625,000, with zero residual value at the end of 10 years. Under Plan B, Division D would begin producing a new product at a cost of $8,240,000. This plan is expected to generate net cash inflows of $1,090,000 per year for 10 estimated useful life of the product line. Estimated residual value for Plan B is $1,100,000. Division D uses straight-line depreciation and requires an annual return of 10%. a. Compute the payback, the ARR, the NPV, and the profitability index for both plans. b. Compute the estimated IRR of Plan A. years, the

Essentials Of Investments

11th Edition

ISBN:9781260013924

Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Chapter1: Investments: Background And Issues

Section: Chapter Questions

Problem 1PS

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Ace Inc. is evaluating two mutually exclusive projects—Project A and Project B. The initial investment for each project is $50,000. Project A will generate cash inflows equal to $15,625 at the end of each of the next five years; Project B will generate only one cash inflow in the amount of $99,500 at the end of the fifth year (i.e., no cash flows are generated in the first four years). The required rate of return of Ace Inc. is 10 percent. Which project should Ace Inc. purchase? Group of answer choices Project A should be purchased because it has a higher net present value (NPV) than Project B. Project A should be purchased because it will produce cash every year for five years. Project A should be purchased because it has a positive net present value (NPV). Neither project should be purchased, because neither has a positive net present value (NPV).
Determine the average rate of return for a project that is estimated to yield total income of $356,400 over 4 years, costs $601,000, and has a $59,000 residual value.%
Project A requires a $315,000 initial investment for new machinery with a five-year life and a salvage value of $35,500. Project A is expected to yield annual income of $23,900 per year and net cash flow of $78,750 per year for the next five years.Compute Project A’s accounting rate of return. *please help correct the answer
Normal Manufacturing Co. is purchasing a production facility at a cost of $22.5 million. The firm expects the project to generate annual cash flows of $7 million over the next five years. What is the internal rate of return on this project? (Round the finall answer to the nearest percent.) 20% 18% O 17% O 19%
Ace Barker Inc. is evaluating two mutually exclusive projects: A and B. The initial investment for each project is $42,000. Project A will generate cash inflows equal to $15,600 at the end of each of the next five years; Project B will generate only one cash inflow in the amount of $70,000 at the end of the fifth year (i.e., no cash flows are generated in the first four years). The required rate of return of Ace Barker Inc. is 10 percent. Which project should Ace Barker Inc. purchase? O Project A should be purchased because it has a higher net present value (NPV) than Project B O Project A should be purchased because it will produce cash every year for five years. O Project B should be purchased because it has a positive net present value (NPV). Neither project should be purchased, because neither has a positive net present value (NPV).
A project with a life of 6 years is expected to provide annual sales of $260,000 and costs of $173,000. The project will require an investment in equipment of $490,000, which will be depreciated on a straight-line method over the life of the project. You feel that both sales and costs are accurate to +/-15 percent. The tax rate is 21 percent. What is the annual operating cash flow for the best-case scenario?
BNN Corporation is currently evaluating a project that requires an initial investment of $1,000,000 with a hurdle rate of 5%. Below are the expected Cash inflow for the next five years of the project Year Cash Inflows 1 $100,000 2 200,000 3 300,000 4 400,000 5 200,000 How long will it take for BNN Corporation to recover its initial investment?
A project has an initial cost of $35,000 and produces cash flows of $20,000, $15,000, $10,000, and $5,000 over the next four years, respectively. The project requires a 13 percent rate of return and has a required discounted payback period of three years. Should the project be accepted? Why or why not?
One project with initial cost of 29350 is expedited to generate cash flows of 7200 9300 9400 8300 and 8000 over each of the next five years respectively. What is the projects playback period?
What is the expected operating cash flow for year 2 of a project given the following information. To undertake the project, $321,000 must be spent on new equipment. The equipment has an expected life of 7 years and will be depreciated straight- line over that same period to a book value of 0. New annual sales of $211,000 are expected (expected sales are the same each year). Cost of goods sold are projected to be 44% of sales, Fixed cash operating expenses are $46,000 per year. Tax rate is 26%, in the event EBIT is negative, the firm would have a tax credit based on the 26% tax rate. O a. 78385.51 Ob. 65321.26 Oe. 64862.69 Od. 68135.92 O e. 82304.78 Of. 54216.64
A 4-year project is expected to generate annual sales of 30,000 units at a price of $50.00 per unit and a variable cost of $38.00 per unit. The equipment necessary for the project will cost $205,000 and will be depreciated on a straight-line basis over the life of the project. Fixed costs are $250,000 per year and the tax rate is 28.00 percent. How sensitive is the operating cash flow to a $1 change in the per unit variable cost? Answer in the form of a percentage change from the base case, e.g., 7.425% change in operating cash flow, and enter your answer as a whole number rounded to three decimal places, i.e., 7.425.

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