11. Uneven cash flowsA series of cash flows may not always necessarily be an annuity. Cash flows can also be uneven and variable in amount, but the concept of the timevalue of money will continue to apply.Consider the following case:The Purple Lion Beverage Company expects the following cash flows from its manufacturing plant in Palau over the next six years:Year 1$400,000Year 2$37,500O $1,979,094O $917,500Annual Cash FlowsYear 3$480,000Year 4$450,000O $2,292,500O $1,775,000Year 5The CFO of the company believes that an appropriate annual interest rate on this investment is 4%. What is the present value of this uneven cash flowstream, rounded to the nearest whole dollar?$550,000Year 6$375,000

NPV is also known as Net Present Value. It is a capital budgeting techniques which help in decision…

A series of cash flows may not always necessarily be an annuity. Cash flows can also be uneven and variable in amount, but the concept of the time value of money will continue to apply. Consider the following case: The Purple Lion Beverage Company expects the following cash flows from its manufacturing plant in Palau over the next six years: Annual Cash Flows Year 3 Year 4 Year 1 Year 2 $400,000 $37,500 $480,000 $450,000 The CFO of the company believes that an appropriate annual interest rate on this investment is 4%. What is the present value of this uneven cash flow stream, rounded to the nearest whole dollar? $1,979,094 $917,500 Year 5 Year 6 $550,000 $375,000 $2,292,500 $1,775,000

A series of cash flows may not always necessarily be an annuity. Cash flows can also be uneven and variable in amount, but the concept of the time value of money will continue to apply. Consider the following case: The Purple Lion Beverage Company expects the following cash flows from its manufacturing plant in Palau over the next six years: Annual Cash Flows Year 3 Year 4 Year 1 Year 2 $400,000 $37,500 $480,000 $450,000 The CFO of the company believes that an appropriate annual interest rate on this investment is 4%. What is the present value of this uneven cash flow stream, rounded to the nearest whole dollar? $1,979,094 $917,500 Year 5 Year 6 $550,000 $375,000 $2,292,500 $1,775,000

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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8. Unevencash flows A series, or stream, of cash flows may not always necessarily be an annuity. Cash flows can also be uneven and nonconstant, but the concept of the time value of money applies to uneven cash flows as well. Consider the following case: Swanky Beverage Co. expects the following cash flows from its manufacturing plant in Palau over the next 6 years: Year Annual Cash Flows 1 $1,200,000 2 $3,650,000 $5,750,000 $4,400,000 $3,800,000 $4,500,000 3 4 5 6
Elmdale Enterprises is deciding whether to expand its production facilities. Although long-term cash flows are difficult to estimate, management has projected the following cash flows for the first two years (in millions of dollars): a. What are the incremental earnings for this project for years 1 and 2? (Note: Assume any incremental cost of goods sold is included as part of operating expenses.) b. What are the free cash flows for this project for years 1 and 2? a. What are the incremental earnings for this project for years 1 and 2? (Note: Assume any incremental cost of goods sold is included as part of operating expenses.) Calculate the incremental earnings of this project below: (Round to one decimal place.) Incremental Earnings Forecast (millions) Sales Operating Expenses Depreciation EBIT Income tax at 21% Unlevered Net Income Year 1 Year 2 $ $ SA $ 69 $ GA 67 69 $ $ $ 6969 $ $ SA
Home Security Systems is analyzing the purchase of manufacturing equipment that will cost $56,000. The annual cash inflows for the next three years will be: Year 1 2 3 Cash Flow $ 28,000 26,000 21,000 Use Appendix B and Appendix D for an approximate answer but calculate your final answer using the financial calculator method. a. Determine the internal rate of return. Note: Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places. Internal rate of return %
You may attempt this question 2 more times for credit. A firm has invested $700 in a new machine that is expected to last for the next 4 years. The machine will be depreciated on a straight line basis down to zero by the end of its 4 year life. The firm projects that the machine will generate consecutive annual cash inflows of $700 beginning in one year and will generate consecutive annual cash outflows at 290 also beginning in one year.. Assuming the tax rate of 33%, determine the firm's cash flow next year. Place your answer to dollars and cents. Do not include a dollar sign or a comma in your answer.
Myca Corp. has a project with the following cash flows. What is the value of the cash flows today assuming an annual interest rate of 9.4 percent? Year 1 2 3 4 Cash Flow $1,700 2,120 2,430 2,440
Chandler Corp. is expecting a new project to start producing cash flows, beginning at the end of this year. They expect cash flows to be as follows: $643,547 at the end of year 1, $678,214 at the end of year 2, $775,908 at the end of year 3, $778,326 at the end of year 4, and $735,444 at the end of year 5. If they can reinvest these cash flows to earn a return of 8.2 percent, what is the future value of this cash flow stream at the end of five years? (Round to the nearest dollar.)
Roopali is considering an investment proposal with the following cash flows: Initial investment-depreciable assets $45,000 Initial investment-working capital 5,000 Net cash inflows from operations (per year for 7 years) 10,000 Disinvestment-depreciable assets 3,000 Disinvestment-working capital 2,000 Determine the payback period. Round to one decimal place. Determine the accounting rate of return on initial investment. round to three decimal places. Determine the accounting rate of return on average investment
Consider another set of net cash flows: Year Cash flow 0 1,500 1 2,000 2 0 3 1,500 4 3,000 5 4,000 What is the net present value of the stream if the opportunity cost of capital is 11 percent? What is the value of the stream at the end of year 5 if the cash flows are invested in an account that pays 11 percent annually? What cash flows today (time 0), in lieu of the 2,000 cash flow, would be needed to accumulate $20,000 at the end of year 5? (assume that the cash flows for years 1 through 5 remain the same.)
8. What is a payback period? Alpha Company invested $42,000 in new equipment. The more efficient new equipment was expected to reduce operating cash outflows over the next four years by the following: Year 3 Year 1 Year 2 Year 4 $8,000 $7,000 $5,000 $4,000 Using the averaging method, the payback period for the investment is:
The Purple Lion Beverage Company expects the following cash flows from its manufacturing plant in Palau over the next five years: Year 1 $250,000 Annual Cash Flows Year 2 $20,000 Year 3 Year 4 $180,000 $450,000 Year 5 $550,000 The CFO of the company believes that an appropriate annual interest rate on this investment is 4%. What is the present value of this uneven cash flow stream, rounded to the nearest whole dollar?
The Purple Lion Beverage Company expects the following cash flows from its manufacturing plant in Palau over the next four years: Annual Cash Flows Year 1 Year 2 Year 3 Year 4 $100,000 $20,000 $330,000 $450,000 The Cro of the company believes that an appropriate annual interest rate on this investment is 4%. What is the present value of this uneven cash flow stream, rounded to the nearest whole dollar? O $1,650,000 O 2,000,000 O $792,676 O $450,000

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