76°F Mostly cloudy 2 Current Attempt Pharoah Industries is expanding its product line and its production capacity. The costs and expected cash flows of the two independent projects are given in the following table. The firm uses a discount rate of 15.04 percent for such projects. Year Product Line Expansion Production Capacity Expansion 0 -$2,166,800 -$7,516,100 1 647,500 2,315,400 2 807,400 2,315,400 807,400 2,315,400 4 807,400 3,165,000 5 807,400 3,165,000 a. What are the NPVS of the two projects? (Enter negative amounts using negative sign, e.g. -45.25. Do not round discount factors. Round other intermediate calculations and final answer to 0 decimal places, e.g. 1,525.) * NPV of product line expansion is $ NPV of production capacity expansion is F2 DII 3 # F3 Search PrtScn Home End PgUp F9 $ % & 4 5 6 7 8 9 0 W E R T Y U S D X Alt FF G H J K C V B N M P

76°F Mostly cloudy 2 Current Attempt Pharoah Industries is expanding its product line and its production capacity. The costs and expected cash flows of the two independent projects are given in the following table. The firm uses a discount rate of 15.04 percent for such projects. Year Product Line Expansion Production Capacity Expansion 0 -$2,166,800 -$7,516,100 1 647,500 2,315,400 2 807,400 2,315,400 807,400 2,315,400 4 807,400 3,165,000 5 807,400 3,165,000 a. What are the NPVS of the two projects? (Enter negative amounts using negative sign, e.g. -45.25. Do not round discount factors. Round other intermediate calculations and final answer to 0 decimal places, e.g. 1,525.) * NPV of product line expansion is $ NPV of production capacity expansion is F2 DII 3 # F3 Search PrtScn Home End PgUp F9 $ % & 4 5 6 7 8 9 0 W E R T Y U S D X Alt FF G H J K C V B N M P

Managerial Accounting

15th Edition

ISBN:9781337912020

Author:Carl Warren, Ph.d. Cma William B. Tayler

Publisher:Carl Warren, Ph.d. Cma William B. Tayler

Chapter12: Capital Investment Analysis

Section: Chapter Questions

Problem 6E: Cash payback method Lily Products Company is considering an investment in one of two new product...

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16. Comparing Investment Criteria Consider the following cash flows of two mutually exclusive projects for AZ-Motorcars. Assume the discount rate for both projects is 10 percent. Year AZM Mini-SUV AZF Full-SUV 0123 -$575,000 -$980,000 373,000 395,000 219,000 477,000 185,000 339,000 a. Based on the payback period, which project should be accepted? b. Based on the NPV, which project should be accepted? c. Based on the IRR, which project should be accepted? d. Based on this analysis, is incremental IRR analysis necessary? If yes, please conduct the analysis.
Cash payback method Lily Products Company is considering an investment in one of two new product lines. The investment required for either product line is 540,000. The net cash flows associated with each product are as follows: A. Recommend a product offering to Lily Products Company, based on the cash payback period for each product line. B. Why is one product line preferred over the other, even though they both have the same total net cash flows through eight periods?
NPV PROFILES: TIMING DIFFERENCES An oil-drilling company must choose between two mutually exclusive extraction projects, and each costs 12 million. Under Plan A, all the oil would be extracted in 1 year, producing a cash flow at t = 1 of 14.4 million. Under Plan B, cash flows would be 2.1 million per year for 20 years. The firms WACC is 12%. a. Construct NPV profiles for Plans A and B, identify each projects IRR, and show the approximate crossover rate. b. Is it logical to assume that the firm would take on all available independent, average-risk projects with returns greater than 12%? If all available projects with returns greater than 12% have been undertaken, does this mean that cash flows from past investments have an opportunity cost of only 12% because all the company can do with these cash flows is to replace money that has a cost of 12%? Does this imply that the WACC is the correct reinvestment rate assumption for a projects cash flows? Why or why not?
Seorang Your division is considering two projects with the following cash flows and a WACC of 6.10%. Year Project A Project B -$100,000 -$100,000 a. What is Project A's NPV? b. What are the project B's IRR? c. What is the crossover rate? $30,000 $50,000 a)$12,473; b)12.71%; c)6.10% a)$12,473; b) 13.48%; c)12.71% a)$14,043; b) 13.48%; c)9.63% a)$14,043; b)12.71%; c) 9.63% a)$14,043; b)13.48%; c)6.10% $40,000 $50,000 3 $60,000 $25,000
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Assume a $290,000 investment and the following cash flows for two products: Year Product X 1 A234 4 $ 100,000 100,000 75,000 40,000 Product Y $ 90,000 100,000 Product X Product Y 80,000 40,000 a. Calculate the payback for products X and Y. Note: Do not round intermediate calculations. Round your answers to 2 decimal places. years years b. Which alternative would you select under the payback method? Product X is selected O Product Y is selected
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IRR and NPV A company is analyzing two mutually exclusive projects, S and L, with *the following cash flows: 1 2 3 4 Project S -$1,000 $900 $250 $250 $10 $400 $10 Project L -$1,000 $0 $800 The company's WACC is 10 percent. What is the IRR of the better project? (Hint: Note that the better project may or may not be the one with the higher IRR.)
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10.5 Net present value: Blanda Incorporated management is considering investing in two alternative production systems. The systems are mutually exclusive, and the cost of the new equipment and the resulting cash flows are shown in the accompanying table. If the firm uses a 9 percent discount rate for production system projects, in which system should the firm invest? Year System 1 System 2 -$15,000 -$45,000 1 15,000 32,000 2 15,000 32,000 15,000 32,000 10.6 Payback: Refer to Problem 10.5. What are the payback periods for production systems 1 and 2? If the systems are mutually exclusive and the firm always chooses projects with the lowest payback period, in which system should the firm invest? 10.7 Payback: Quebec, Inc., is purchasing machinery at a cost of $3,768,966. The company's management expects the machinery to produce cash flows of $979,225, $1,158,886, and $1,881,497 over the next three years, respectively. What is the payback period? 10.8 Payback: Northern Specialties just…