A home goods company is considering toping a new line of kitchen appliances. It uses a weighted average cost of capital (WACC) of 12% to evaluate the net present value (NPV) of all new projects it considers. The forecasted internal rate of return (IRR) for this new line of kitchen appliances is 15%. Of the following, which response best explains whether the company should make the investment in the new line? It should not because 15% is not a high level for IRR It should because 12% is a very positive WACC It should not because the WACC of 12% is below the 15% IRR It should because the IRR is higher than the WACC and thus the NPV would be positive

A home goods company is considering toping a new line of kitchen appliances. It uses a weighted average cost of capital (WACC) of 12% to evaluate the net present value (NPV) of all new projects it considers. The forecasted internal rate of return (IRR) for this new line of kitchen appliances is 15%. Of the following, which response best explains whether the company should make the investment in the new line? It should not because 15% is not a high level for IRR It should because 12% is a very positive WACC It should not because the WACC of 12% is below the 15% IRR It should because the IRR is higher than the WACC and thus the NPV would be positive

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

See similar textbooks

Similar questions

TLT Ltd is considering the purchase of a new machine for use in its production process. Management has developed three alternative proposals to help evaluate the machine purchase. Only one of these proposals can be implemented. Proposals A and B both have the same cost to set up, but the output from proposal A (as measured by future net cash flows) commences at a high rate and then declines over time, while Proposal B starts at a low rate and then increases over time. Proposal C involves buying two of the machines considered under proposal B. That is, proposal C is simply Proposal B scaled by a factor of two. Proposal C results in net cash flows which are similar in magnitude to proposal A's net cash flows in the first two years. The estimated net cash flows, internal rates of return and net present values at 9% and 11% for each proposal are given in the following table. Proposal A -$290,000 $100,000 $90,000 Proposal B -$290,000 $40,000 $50,000 Proposal C -$580,000 $80,000 $100,000 End…
Assume that a company is considering purchasing a machine for $50,500 that will have a five-year useful life and no salvage value. The machine will lower operating costs by $17,000 per year. The company's required rate of return is 18%. The profitability index for this investment is closest to: Click here to view Exhibit 14B-1 and Exhibit 14B-2, to determine the appropriate discount factor(s) using the tables provided. Multiple Choice C O 0.95. 1.01. 1.05. 1.11.
ZLIK Inc is considering methods by which to evaluate a multi-year project that requires a large $55 million investment. Assuming the project has conventional cash flows, under which conditions would the project be an acceptable investment for ZLIK? Select all that apply. A) NPV < 0 B) NPV > 0 C) IRR > firm's required return D) IRR < firm's required return E) Profitability Index > 1.0 F) Profitability Index < 1.0
Would you accept a project where you had an initial investment of $10,000,000 but the NPV was only $10,000? Group of answer choices A. There is not enough information B.Yes, because you will make the required return each year and the NPV in additional to the required return. C. No, the NPV is too small for such a large initial investment
Interstate Manufacturing is considering either overhauling an old machine or replacing it with a new machine. Information about the two alternatives follows. Management requires a 10% rate of return on its investments. (PV of $1, FV of $1, PVA of $1, and FVA of $1) (Use appropriate factor(s) from the tables provided.) Alternative 1: Keep the old machine and have it overhauled. This requires an initial investment of $150,000 and results in $60,000 of net cash flows in each of the next five years. After five years, it can be sold for a $20,000 salvage value. Alternative 2: Sell the old machine for $50,000 and buy a new one. The new machine requires an initial investment of $300,000 and can be sold for a $20,000 salvage value in five years. It would yield cost savings and higher sales, resulting in net cash flows of $60,000 in each of the next five years. Required: 1. Determine the net present value of alternative 1. 2. Determine the net present value of alternative 2. 3. Which…
Interstate Manufacturing is considering either overhauling an old machine or replacing it with a new machine. Information about the two alternatives follows. Management requires a 10% rate of return on its investments. (PV of $1, FV of $1. PVA of $1. and FVA of $1) Note: Use appropriate factor(s) from the tables provided. Alternative 1: Keep the old machine and have it overhauled. This requires an initial investment of $154,000 and results in $52,000 of net cash flows in each of the next five years. After five years, it can be sold for a $20,000 salvage value. Alternative 2: Sell the old machine for $41,000 and buy a new one. The new machine requires an initial investment of $291,000 and can be sold for a $12,000 salvage value in five years. It would yield cost savings and higher sales, resulting in net cash flows of $43,000 in each of the next five years. Required: 1. Determine the net present value of alternative 1. 2. Determine the net present value of alternative 2. 3. Which…
Pablo Company is considering buying a machine that will yield Income of $3,400 and net cash flow of $16,500 per year for three years. The machine costs $45,600 and has an estimated $6,300 salvage value. Pablo requires a 15% return on Its Investments. Compute the net present value of this Investment. (PV of $1, FV of $1. PVA of $1, and FVA of $1) (Use appropriate factor(s) from the tables provided. Negative amounts should be indicated by a minus sign. Round your present value factor to 4 decimals.) Years 1-3 Year 3 salvage Totals Initial investment Net present value Net Cash Flows x PV Factor = = = = Present Value of Net Cash Flows $ 0 0
please answer both requirements
Two alternative machines will produce the same product, but one is capable of higher quality work, which can be expected to return greater revenue. The following are relevant data. Determine which is the better alternative, assuming repeatability and using SL. depreciation, an income-tax rate of 26%, and an after-tax MARR of 11%. Capital investment Life Calculate the AW value for the Machine A AWA(11%) 5 (Round to the nearest dollar) Terminal BV (and MV) Annual receipts Annual expenses Machine A $18,000 11 years $4,000 $157,000 $129,000 Click the icon to view the interest and annuity table for discrete compounding when the MARR is 11% per year. Machine $29,000 6 years 50 $178,000 $164,000