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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18. Comparing Investment Criteria Consider the following cash flows of two mutually exclusive projects for Tokyo Rubber Company. Assume the discount rate for both projects is 8 percent. Year 0 1 2 3 Dry Prepreg -$1,800,000 1,080,000 840,000 870,000 Solvent Prepreg -$715,000 380,000 627,000 396,000 a. Based on the payback period, which project should be taken? b. Based on the NPV, which project should be taken? c. Based on the IRR, which project should be taken? d. Based on this analysis, is incremental IRR analysis necessary? If yes, please conduct the analysis.
Lesi PayUBLK Perou, el Presem velue Method, and Analysis Elite Apparel Inc. is considering two Investment projects. The estimated net cash flows from each project are as follows: Year Plant Expansion Retall Store Expansion 1 2 3 4 5 Total Year Each project requires an Investment of $241,000. A rate of 15% has been Present Value of $1 at Compound Interest 6% 10% 0.943 0.890 0.840 0.792 0.747 0.705 0.665 0.627 0.592 0.558 1 2 3 4 5 6 7 8 9 10 Required: $133,000 108,000 94,000 85,000 26,000 $446,000 0.909 Net present value 0.826 0.751 15% 0.893 0.870 0.833 0.797 0.756 0.694 0.712 0.579 0.683 0.636 0.572 0.482 0.621 0.557 0.497 0.402 0.564 0.507 0.432 0.335 0.513 0.452 0.376 0.279 0.467 0.327 0.233 0.424 0.284 0.194 0.385 0.247 12% 0.404 0.361 0.322 2 years Present value of net cash flow total Less amount to be invested $111,000 130,000 89,000 62,000 54,000 $446,000 1a. Compute the cash payback period for each project. Cash Payback Period 2 years ✓ ✓ S api 0.658 S 20% Plant Expansion…
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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?
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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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IRR: Mutually exclusive projects Nile Inc. wants to choose the better of two mutually exclusive projects that expand warehouse capacity. The projects' cash flows are shown in the following table: . The cost of capital is 18%. a. The internal rate of return (IRR) of project X is %. (Round to two decimal places.) Data table Is project X acceptable on the basis of IRR? (Select the best answer below.) (Click on the icon here in order to copy the contents of the data table below into a spreadsheet.) Yes O No Project X $500,000 Project Y $310,000 The internal rate of return (IRR) of project Y is %. (Round to two decimal places.) Initial investment (CF) Is project Y acceptable on the basis of IRR? (Select the best answer below.) Year (t) Cash inflows (CF,) $120,000 $140,000 $105,000 $60,000 1 $100,000 O Yes $160,000 O No $170,000 $190,000 b. Which project is preferred? (Select the best answer below.) $250,000 $30,000 OA. Project X N 34 5
X construction is considering two projects to develop. The estimated net cash flow from each project is as follows:YearProject X ($)Project Y ($)1110,00075,000265,000150,0003100,00060,0004115,00055,000535,00060,000Total425,000400,000Each project requires an investment of $ 200,000. The cost of capital is 10%.Require toa) Calculate Net Present Value, Payback period, ARR and Profitability Index.b) Which Project is to be recommended to develop based on NPV, Profitability Index, Payback period and ARR? Suggest
Cullumber 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 14.98 percent for such projects. Year Product Line Expansion Production Capacity Expansion 0 -$2,426,500 -$6,756,300 1 501,800 2,381,500 2 853,000 2,381,500 3 853,000 2,381,500 4 853,000 3,975,200 5 853,000 3,975,200 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 $ b. Should both projects be accepted? or either? or neither? Explain your reasoning.