Carla Vista Company is considering two different, mutually exclusive capital expenditure proposals. Project A will cost $509,000, has an expected useful life of 12 years and a salvage value of zero, and is expected to increase net annual cash flows by $74,100. Project B will cost $342,000, has an expected useful life of 12 years and a salvage value of zero, and is expected to increase net annual cash flows by $50,700. A discount rate of 8% is appropriate for both projects. Click here to view the factor table. Compute the net present value and profitability index of each project. (If the net present value is negative, use either a negative sign preceding the number eg -45 or parentheses eg (45). Round present value answers to 0 decimal places, e.g. 125 and profitability index answers to 2 decimal places, e.g. 15.25. For calculation purposes, use 5 decimal places as displayed in the factor table provided.) Net present value - Project A $ Profitability index - Project A Net present value - Project B $ Profitability index - Project B

Carla Vista Company is considering two different, mutually exclusive capital expenditure proposals. Project A will cost $509,000, has an expected useful life of 12 years and a salvage value of zero, and is expected to increase net annual cash flows by $74,100. Project B will cost $342,000, has an expected useful life of 12 years and a salvage value of zero, and is expected to increase net annual cash flows by $50,700. A discount rate of 8% is appropriate for both projects. Click here to view the factor table. Compute the net present value and profitability index of each project. (If the net present value is negative, use either a negative sign preceding the number eg -45 or parentheses eg (45). Round present value answers to 0 decimal places, e.g. 125 and profitability index answers to 2 decimal places, e.g. 15.25. For calculation purposes, use 5 decimal places as displayed in the factor table provided.) Net present value - Project A $ Profitability index - Project A Net present value - Project B $ Profitability index - Project B

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

Quad Enterprises is considering a new 3-year expansion project that requires an initial fixed asset investment of $2.1 million. The fixed asset falls into the 3-year MACRS class (MACRS Table) and will have a market value of $159,600 after 3 years. The project requires an initial investment in net working capital of $228,000. The project is estimated to generate $1,824,000 in annual sales, with costs of $729,600. The tax rate is 25 percent and the required return on the project is 11 percent. Calculate the project net cash flow from year 0 to year 3.
An electronic circuit board manufacturer is considering six mutually exclusive cost-reduction projects for its PC-board manufacturing plant. All have lives of 10 years and zero salvage value. The required investment, the estimated after-tax reduction in annual disbursements, and the gross rate of return arc given for each alternative in the following table: llte rate of return on incremental investments is given for each project as follows: Which project would you select according to the rate of return on incremental investment if it is stated that the MARR is 15%?
Blink of an Eye Company is evaluating a 5-year project that will provide cash flows of $35,700, $62,070, $62,450, $60,260, and $43,300, respectively. The project has an initial cost of $158,080 and the required return is 8.3 percent. What is the project's NPV?
Down Under Boomerang, Inc., is considering a new 3-year expansion project that requires an initial fixed asset investment of $2.33 million. The fixed asset falls into the 3- year MACRS class (MACRS schedule). The project is estimated to generate $1,735,000 in annual sales, with costs of $640,000. The project requires an initial investment in net working capital of $300,000, and the fixed asset will have a market value of $255,000 at the end of the project. a. If the tax rate is 25 percent, what is the project's Year O net cash flow? Year 1? Year 2? Year 3? (A negative answer should be indicated by a minus sign. Do not round intermediate calculations and enter your answers in dollars, not millions of dollars, rounded to two decimal places, e.g., 1,234,567.89.) b. If the required return is 9 percent, what is the project's NPV? (Do not round intermediate calculations and enter your answer in dollars, not millions of dollars, rounded to two decimal places, e.g., 1,234,567.89.) a. Year 0…
Company is evaluating two projects, Project A and Project B. The initial investment on both the projects are $25,000. Both have equal lives. The Project A will generate cash flows of $20,000 and $35,000 in year 2 and year 3. The Project B will generate $15,000 in yea- 1, $22,000 year-2, and $25,000 in year-3. Compute the incremental (B-A) IRR. а. -21.38% b. 56.80% с. 21.38% d. -24.75%
Project Marvel is a five-year project. The project has a total cash inflow of $350,000. The present value of such inflows is $275,000. The project requires an initial investment of $200,000 and additional working capital of $25,000. What is the net present value of the project? multiple choice $0 $50,000 ($50,000) ($250,000)
Carlyle Inc. is considering two mutually exclusive projects. Both require an initial investment of $14,200 at t = o. Project S has an expected life of 2 years with inflows of $7,400 and $12,800 at the end of Years 1 and 2, respectively. In addition, Project S can be repeated at the end of Year 2 with no changes in its cash: L has an expected life of 4 years with after-tax cash inflows $6,900 at the end of each of the next 4 years. Each project has a WACC of 10%. What is the equival annuity of the most profitable project? Do not round your intermediate calculations. O a $2,420.31 O b. $1,789.52 c. $2,533.33 Od. $2,827.56 Oe $3,110.31
Axis Corp. is studying two mutually exclusive projects. Project Kelvin involves an overhaul of the existing system; it will cost $40,000 and generate cash inflows of $20,000 per year for the next 3 years. Project Thompson replaces the existing system; it will cost $285,000 and generate cash inflows of $65,000 per year for 6 years. Using a(n) 9.07% cost of capital, calculate each project's NPV, and make a recommendation based on your findings. The NPV of project Kevin is ____ The NPV of project Thompson is _____ Which project should the company choose?
The Butler-Perkins Company (BPC) must decide between two mutually exclusive projects. Each project has an initial after-tax cash outflow of $6,500 and has an expected life of 3 years. Annual project after-tax cash flows begin 1 year after the initial investment and are subject to the following probability distributions: Project A Project B Probability Cash Flows Probability Cash Flows 0.2 $6,250 0.2 $ 0.6 6,500 0.6 6,500 0.2 6,750 0.2 19,000 BPC has decided to evaluate the riskier project at 11% and the less-risky project at 8%. a. What is each project's expected annual after-tax cash flow? Round your answers to the nearest cent. Project A: $ Project B: Project B's standard deviation (OB) is $6,185 and its coefficient of variation (CVB) is 0.80. What are the values of gg and CVA? Do not round intermediate calculations. Round your answer for standard deviation to the nearest cent and for coefficient of variation to two decimal places. OA: $ CVA:
Project S has a cost of $11,000 and is expected to produce benefits (cash flows) of $3,400 per year for 5 years. Project L costs $23,000 and is expected to produce cash flows of $6,900 per year for 5 years. Calculate the two projects' NPVs, assuming a cost of capital of 14%. Do not round intermediate calculations. Round your answers to the nearest cent. Project S: $ Project L: $
Project S requires an initial outlay at t = 0 of $19,000, and its expected cash flows would be $5,500 per year for 5 years. Mutually exclusive Project L requires an initial outlay at t = 0 of $37,000, and its expected cash flows would be $10,800 per year for 5 years. If both projects have a WACC of 13%, which project would you recommend? Select the correct answer. a. Project L, because the NPVL > NPVS. b. Neither Project S nor L, because each project's NPV < 0. c. Both Projects S and L, because both projects have NPV's > 0. d. Both Projects S and L, because both projects have IRR's > 0. e. Project S, because the NPVS > NPVL.
Project X has an initial cost of $20,000 and a cash inflow of $25,000 in Year 3. Project Y costs $40,700 and has cash flows of $12,000, $25,000, and $10,000 in Years 1 to 3, respectively. The discount rate is 6 percent and the projects are mutually exclusive. Based on the individual project's IRRs you should accept Project. based on NPV you should accept Project: the final decision should be to accept Project. Multiple Choice O O O O Y; Y, Y Y.XY Y: X, X X;X;X X, Y, Y