**Project Investment Evaluation**Brett Collins is reviewing his company’s investment in a cement plant. The company paid $14,900,000 five years ago to acquire the plant. Now, top management is considering an opportunity to sell it. The president wants to know whether the plant has met original expectations before deciding its fate. The company’s desired rate of return for present value computations is 8 percent. Expected and actual cash flows are as follows:| | Year 1 | Year 2 | Year 3 | Year 4 | Year 5 ||----------|----------|----------|----------|----------|----------|| Expected | $3,330,000 | $4,960,000 | $4,570,000 | $5,120,000 | $4,250,000 || Actual | $2,660,000 | $2,990,000 | $4,840,000 | $3,870,000 | $3,580,000 |_PV of $1_ and _PVA of $1_ (Use appropriate factor(s) from the tables provided.)### Requireda.&b. Compute the net present value of the expected and actual cash flows as of the beginning of the investment. **Note:** Negative amounts should be indicated by a minus sign. Round your intermediate calculations and final answer to the nearest whole dollar.| | ||------------------------------|-------------------|| Net present value (expected) | || Net present value (actual) | |

Expected PV value at 8% Net Present Value of Expected Cash Flows Actual PV value at 8% Net Present Value of Actual Cash Flows Investment $ (14,900,000.00) 1 $ (14,900,000.00) $ (14,900,000.00) 1 $ (14,900,000.00) Year 1 $ 3,330,000.00 0.926 $ 3,083,580.00 $ 2,660,000.00 0.926 $ 2,463,160.00 2 $ 4,960,000.00 0.857 $ 4,250,720.00 $ 2,990,000.00 0.857 $ 2,562,430.00 3 $ 4,570,000.00 0.794 $ 3,628,580.00 $ 4,840,000.00 0.794 $ 3,842,960.00 4 $ 5,120,000.00 0.735 $ 3,763,200.00 $ 3,870,000.00 0.735 $ 2,844,450.00 5 $ 4,250,000.00 0.681 $ 2,894,250.00 $ 3,580,000.00 0.681 $ 2,437,980.00 Net Present Value $ 2,720,330.00 $ (749,020.00) Final Answer Net Present value (Expected) $ 2,720,330.00 Net Present value (Actual) $ (749,020.00)

Business

Accounting

Brett Collins is reviewing his company's investment in a cement plant. The company paid $14,900,000 five years ago to acquire the plant. Now top management is considering an opportunity to sell it. The president wants to know whether the plant has met original expectations before he decides its fate. The company's desired rate of return for present value computations is 8 percent. Expected and actual cash flows follow: (PV of $1 and PVA of $1) (Use appropriate factor(s) from the tables provided.) Year 1 Expected $3,330,000 Actual 2,660,000 Year 2 Year 3 Year 4 $4,960,000 $4,570,000 $5,120,000 2,990,000 4,840,000 3,870,000 Net present value (expected) Net present value (actual) Year 5 $4,250,000 3,580,000 Required a.&b. Compute the net present value of the expected and actual cash flows as of the beginning of the investment. (Negative amounts should be indicated by a minus sign. Round your intermediate calculations and final answer to the nearest whole dollar.)

Brett Collins is reviewing his company's investment in a cement plant. The company paid $14,900,000 five years ago to acquire the plant. Now top management is considering an opportunity to sell it. The president wants to know whether the plant has met original expectations before he decides its fate. The company's desired rate of return for present value computations is 8 percent. Expected and actual cash flows follow: (PV of $1 and PVA of $1) (Use appropriate factor(s) from the tables provided.) Year 1 Expected $3,330,000 Actual 2,660,000 Year 2 Year 3 Year 4 $4,960,000 $4,570,000 $5,120,000 2,990,000 4,840,000 3,870,000 Net present value (expected) Net present value (actual) Year 5 $4,250,000 3,580,000 Required a.&b. Compute the net present value of the expected and actual cash flows as of the beginning of the investment. (Negative amounts should be indicated by a minus sign. Round your intermediate calculations and final answer to the nearest whole dollar.)

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

Stuart Company is considering investing in two new vans that are expected to generate combined cash inflows of $30,000 per year. The vans' combined purchase price is $95,500. The expected life and salvage value of each are six years and $20,600, respectively. Stuart has an average cost of capital of 12 percent. (PV of $1 and PVA of $1) (Use appropriate factor(s) from the tables provided.) Required a. Calculate the net present value of the investment opportunity. (Negative amount should be indicated by a minus sign. Round your intermediate calculations and final answer to 2 decimal places.) b. Indicate whether the investment opportunity is expected to earn a return that is above or below the cost of capital and whether it should be accepted. a. Net present value b. Will the return be above or below the cost of capital? Should the investment opportunity be accepted? Above Accepted
Melton Manufacturing Ltd is considering two alternative investment projects. The first project calls for amajor renovation of the company’s manufacturing facility. The second involves replacing just a fewobsolete pieces of equipment in the facility. The company will choose one project or the other this year,but it will not do both. The cash flows associated with each project appear below and the firm discountsproject cash flows at 10%.Year Renovate Replace0 –$4,000,000 –$1,300,0001 2,000,000 1,000,0002 2,000,000 700,0003 2,000,000 300,0004 2,000,000 150,0005 2,000,000 150,000 Calculate the profitability index (PI) of each project and based on this criterion, indicate whichproject you would recommend for acceptance.
Jordan Company is considering investing in two new vans that are expected to generate combined cash inflows of $25,000 per year. The vans' combined purchase price is $94,500. The expected life and salvage value of each are seven years and $20,300, respectively. Jordan has an average cost of capital of 10 percent. (PV of $1 and PVA of $1) Note: Use appropriate factor(s) from the tables provided. Required a. Calculate the net present value of the investment opportunity. Note: Negative amount should be indicated by a minus sign. Round your intermediate calculations and final answer to 2 decimal places. b. Indicate whether the investment opportunity is expected to earn a return that is above or below the cost of capital and whether it should be accepted. a. Net present value b. Will the return be above or below the cost of capital? b. Should the investment opportunity be accepted? Above Accepted
Birkenstock is considering an investment in a nylon-knitting machine. The machine requires an initial investment of $27,600, has a five-year life, and has no residual value after five years. The company's cost of capital is 10.99%. The company has estimated expected cash inflows for three scenarios: pessimistic, most likely, and optimistic. These expected cash inflows are listed in the following table. Calculate the range for the NPV across the three scenarios. (Click on the icon here in order to copy the contents of the data table below into a spreadsheet.) Year Pessimistic 1 $6,720 2 7,310 8,730 4 7,850 5 5,840 $9,320 13,270 ITTI Expected cash inflows Most likely Optimistic $11,750 10,320 11,680 10,720 15,830 12,780 7,730 8,820 For the pessimistic scenario, the NPV is $ (Round to the nearest cent.)
The Karns Oil Company is deciding whether to drill for oil on a tract of land that the company owns. The company estimates the project would cost $4 million today. Karns estimates that, once drilled, the oil will generate positive net cash flows of $2 million a year at the end of each of the next 4 years. Although the company is fairly confident about its cash flow forecast, in 2 years it will have more information about the local geology and about the price of oil. Karns estimates that if it waits 2 years then the project would cost $5 million. Moreover, if it waits 2 years, then there is a 90% chance that the net cash flows would be $2.1 million a year for 4 years and a 10% chance that they would be $1.1 million a year for 4 years. Assume all cash flows are discounted at 8%. If the company chooses to drill today, what is the project's net present value? Do not round intermediate calculations. Enter your answer in millions. For example, an answer of $1.23 million should be entered…
Monterey Company is considering investing in two new vans that are expected to generate combined cash inflows of $30,000 per year. The vans’ combined purchase price is $93,000. The expected life and salvage value of each are four years and $23,000, respectively. Monterey has an average cost of capital of 7 percent. (PV of $1 and PVA of $1) (Use appropriate factor(s) from the tables provided.) Required Calculate the net present value of the investment opportunity. (Round your intermediate calculations and final answer to 2 decimal places.) Indicate whether the investment opportunity is expected to earn a return that is above or below the cost of capital and whether it should be accepted.
Dogwood Company is considering a capital investment in machinery: (Click the icon to view the data.) 8. Calculate the payback. 9. Calculate the ARR. Round the percentage to two decimal places. 10. Based on your answers to the above questions, should Dogwood invest in the machinery? 8. Calculate the payback. Amount invested Expected annual net cash inflow Payback 1,500,000 24 500,000 3 years 9. Calculate the ARR. Round the percentage to two decimal places. Average annual operating income Average amount invested ARR Data Table Initial investment $ 1,500,000 Residual value 350,000 Expected annual net cash inflows 500,000 Expected useful life 4 years Required rate of return 15%
Stevie’s Sporting Goods is considering investing $33,000 in a new machine. The machine is expected to last five years and have a salvage value of $8,000. Annual after-tax net cash inflow from the machine is expected to be $7,000. Calculate the accounting rate of return (aka the unadjusted rate of return). (Enter your answer as a percentage rounded to one decimal place, but do NOT include the percentage sign. For example: 5 divided by 35 is 0.142857, which you would enter as “14.3”)
Hook Industries is considering the replacement of one of its old metal stamping machines. Three alternative replacement machines are under consideration. The cash flows associated with each are shown in the following table attached: . The firm's cost of capital is 10%. a. Calculate the net present value (NPV) of each press. b. Using NPV, evaluate the acceptability of each press. c. Rank the presses from best to worst using NPV.
Beyer Company is considering buying an asset for $350,000. It is expected to produce the following net cash flows. Compute the payback period for this investment. (Cumulative net cash outflows must be entered with a minus sign. Round your Payback Period answer to 2 decimal places.)
Birkenstock is considering an investment in a nylon-knitting machine. The machine requires an initial investment of $27,300, has a five-year life, and has no residual value after five years. The company's cost of capital is 10.41%. The company has estimated expected cash inflows for three scenarios: pessimistic, most likely, and optimistic. These expected cash inflows are listed in the following table. Calculate the range for the NPV across the three scenarios. (Click on the icon here in order to copy the contents of the data table below into a spreadsheet.) Year 1 2 3 4 5 Pessimistic $6,720 7,180 8,680 7,770 5.800 Expected cash inflows Most likely $9,240 10,150 11,790 10,740 7.840 Optimistic $11,830 13,260 15,800 12,790 8.780
Brunette Company is contemplating investing in a new piece of manufacturing machinery. The amount to be invested is $180,000. The present value of the future cash flows generated by the project is $163,000. Should they invest in this project? Oa. yes, because the rate of return on the project is equal to the desired rate of return used to calculate the present value of the future cash flows Ob. no, because net present value is +$17,000 Oc. no, because the rate of return on the project is less than the desired rate of return used to calculate the present value of the future cash flows Od. yes, because the rate of return on the project exceeds the desired rate of return used to calculate the present value of the future cash flows