Consider a project to supply your church with 55,000 gallons of hand sanitizer annually for church services. You estimate that you will need an initial Gh¢4,200,000 in terms of investment to get the project started. The project will last for 5 years. The project will bring in annual cash flows of Gh¢1,375,000. It also estimates a salvage value of Ghç300,000 after dismantling costs. Your cost of capital is 13 percent. Assume no taxes or depreciation. Required: a) What is the NPV of the sanitizer project? Should you pursue this project? b) Suppose you believe that there is a best case scenario where initial investment could be 15% lower with salvage value and revenue being 10% higher, what would be the NPV under this scenario? c) In the worst case scenario, you expect annual cash inflows to be 10% lower, salvage value to be 12% lower and initial investment to be 10% higher. Calculate the NPV under this worst case scenario. Would you still pursue the project?

Consider a project to supply your church with 55,000 gallons of hand sanitizer annually for church services. You estimate that you will need an initial Gh¢4,200,000 in terms of investment to get the project started. The project will last for 5 years. The project will bring in annual cash flows of Gh¢1,375,000. It also estimates a salvage value of Ghç300,000 after dismantling costs. Your cost of capital is 13 percent. Assume no taxes or depreciation. Required: a) What is the NPV of the sanitizer project? Should you pursue this project? b) Suppose you believe that there is a best case scenario where initial investment could be 15% lower with salvage value and revenue being 10% higher, what would be the NPV under this scenario? c) In the worst case scenario, you expect annual cash inflows to be 10% lower, salvage value to be 12% lower and initial investment to be 10% higher. Calculate the NPV under this worst case scenario. Would you still pursue the project?

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

See similar textbooks

Related questions

Q: Suppose that you have acquired the exclusive rights to open a Chick-Fil-A on the UNR campus. Setup…

A: The value of an option refers to the premium that is above the intrinsic value. When more time is…

Q: Company PPInvest has a project will produce cash inflows of $3,200 a year for 4 years with a final…

A: Decision-making is the final step of capital budgeting. The decisions should be made after using the…

Q: A project will produce an operating cash flow of $14,000 a year for 5 years. The initial fixed asset…

A: Net present value (NPV) is an important capital budgeting metric. It is the sum of present values of…

Q: could you help with this homework question? The project you manage require $10,000 in capital…

A: Cost-benefit analysis is a sensitivity analysis that helps in evaluating the benefits of a project…

Q: 5b. An elective project is currently under review. It requires an initial investment of $116,000 for…

A: The rate which makes the total discounted worth of cash flows equal to zero is called IRR or…

Q: Blue Demon Cycle Shop is considering the purchase of used mopeds to be rented to city tourists. The…

A: Here Given Information Mopeds Cost =$18,922.41 Annual Cash Flows =$5,000 Time Period =6 Years Cost…

Q: Street lighting fixtures and their sodium vapor bulbs for a two-block area of a large city need to…

A: Present worth The present value method refers to calculating the present value of future cash. The…

Q: A real estate development company is considering the purchase of a new piece parcel of land in…

A: The Internal Rate of Return (IRR) is a financial metric that represents the annualized rate of…

Q: Your firm is considering investing in a project that will require an initial outlay of $10,000. You…

A: The payback period is the period in which the initial cash outflow has been recovered.It is the time…

Q: A new grocery store cost $50 million in initial investment. It is estimated that the store will…

A: Net present value (NPV) is the difference between the current value of cash and the future worth of…

Q: Vigour Pharmaceuticals Ltd. is considering investing in a new production line for its pain-reliever…

A: The amount of money available at the start of a project or company is referred to as the initial…

Q: Use the following information to answer the next three questions: You are evaluating a project for…

A: Total cash flow from the project is that amount which is received by the investor from the project.…

Q: Aqua Park can purchase a new dolphin (their old one died) for $5,000. The new dolphin will encourage…

A: Cost of new dolphin = $5000 Annual cash inflow from year 1 to 4 = $2000 Cost of capital = 10%

Q: a) Calculate the net present value for both projects. Answer to the nearest cent b) Find the…

A: To determine the net present value, we need to discount each cash flow to PV…

Q: Define the term exposure to financial risk?

A: The question is based on the concept of Financial risk and its exposure.

Q: Courtney Limited has capital project opportunities each of which would require an initial investment…

A: Net Present Value (NPV) is a financial measure used to analyze the profitability of an investment by…

Q: Suppose you have $20,000 to invest in one of the following projects. Project Alpha requires an…

A: To determine the net present value, we need to discount each cash flow to PV using the formula…

Q: Your company is considering to choose one of the two projects: Project Gold and Project Diamond.…

Q: Bill plans to open a service center. The equipment will cost $50,000. Bill expects the after-tax…

A: Profitability index (PI) is the ratio of the present value of the cash inflows from the investment…

Q: You are considering whether to replace an existing flow meter. The existing meter can be sold now…

Q: Pls make sure its correct thanks for yr work.Aberdeen Outboard Motors is contemplating building a…

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

Q: roject you what is the IRR and should the project be accepted? 7.23%, accept project 7.23%, reject…

A: Initial investment = $3,500Cash flow received at the end of each of the next 10 years = $525 Cost of…

Q: Assume you are the finance manager of Almanor Company, and the company is considering investing in…

A: Note: It is a case where no sub-part is specified to solve among the multiple sub-parts posted, so…

Q: There are two projects under consideration by the Rainbow factory. Each of the projects will require…

A: There are two projects under consideration by the Rainbow factory. Each of the projects will require…

Q: A project will produce an operating cash flow of $164,000 a year for three years. The initial cash…

A: NPV is also known as Net Present Value.. It is a capital budgeting technique which helps in decision…

Concept explainers

Production Budget

A budget can be defined as a financial plan designed by an undertaking for a definite period in the future that can contribute towards enhancing the financial success of the business undertaking. It is used to estimate the revenue and expenses. The budget generally takes into account both current and future income and expenses.

Question

Consider a project to supply your church with 55,000 gallons of hand
sanitizer annually for church services. You estimate that you will need an
initial Gh¢4,200,000 in terms of investment to get the project started. The
project will last for 5 years.
The project will bring in annual cash flows of Gh¢1,375,000. It also
estimates a salvage value of Ghç300,000 after dismantling costs.
Your cost of capital is 13 percent. Assume no taxes or depreciation.
Required:
a) What is the NPV of the sanitizer project? Should you pursue this
project?
b) Suppose you believe that there is a best case scenario where
initial investment could be 15% lower with salvage value and
revenue being 10% higher, what would be the NPV under this
scenario?
c) In the worst case scenario, you expect annual cash inflows to be
10% lower, salvage value to be 12% lower and initial investment to
be 10% higher. Calculate the NPV under this worst case scenario.
Would you still pursue the project?

Expert Solution

This question has been solved!

Explore an expertly crafted, step-by-step solution for a thorough understanding of key concepts.

SEE SOLUTION Check out a sample Q&A here

Step 1

Step 2

Step 3

Step 4

Step 5

Step 6

Step 7

Step 8

Step by step

Solved in 8 steps with 6 images

SEE SOLUTION Check out a sample Q&A here

Knowledge Booster

Learn more about

Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, finance and related others by exploring similar questions and additional content below.

Similar questions

A project has an initial investment of $45,000. This project needs an annual spending of $6,000 to generate an annual revenue of $18,000 for six years. Moreover, the project is expected to return $12,000 as a salvage value at the EOY 6. Calculate the AW using MARR of 10%
A proposed bridge on the interstate highway is being considered at the cost of 4 million dollars. It is expected that the bridge will have a life of 30 years. Construction costs will be paid by government agencies. Operation and maintenance costs are estimated to be $250,000 per year. Benefits to the public are estimated to be $900,000 per year. The building of the bridge will result in an estimated cost of $250,000 per year to the general public. The project requires a return of 5%. Determine the benefit/cost (B/C) ratio.
Haslam Homes is considering designing and marketing a concrete, yurt-based pre-fabricated home to compete in the doomsday prepper market. Development will cost $1,000,000 and will take one year. If the yurts are popular (30% probability) the cash flows will be $500,000 per year for 5 years starting in Year 1. If the yurts are not a hit (70% probability) the cash flows will be $100,000 per year for 5 years. Calculate the ENPV of the project. Haslam's cost of capital is 10%. -$137,212 -$150,934 -$166,027 correct answer -$182,630 -$200,893 DO NOT USE EXCEL
Queens Soliderate is considering two mutually exclusive projects. The firm, which has a 12% cost of capital, has estimated its cash flows as shown in the following table. Project A Project B Initial investment (CF0) $130,000 $85,000 Year (t) Cash inflows (CFt) 1 $25,000 $40,000 2 35,000 35,000 3 45,000 30,000 4 50,000 10,000 5 55,000 5,000 a. Calculate the NPV of each project, and assess its acceptability. b. Calculate the IRR for each project, and assess its acceptability. Required to answer. Single line text.
Puan Jasmin is considering a project that requires an initial investment of RM120,000 and this is a 5-year project. This project is expected to have an after-tax cash flow of RM20,000 per year for the first two years, RM40,000 per year for the next two years, and RM50,000 for the fifth year. From the information given, you are required to answer the following questions. a. What is the Payback Period for the project?
You have been tasked with recommending one of the two investment projects for acceptance by your company. Project 1 costs $100,000 to implement today (it is a cost), it will bring subsequent positive cash flows of $50,000 at the end of year one; and subsequently $30,000; $45,000; $8,000. Project 2 initial cost is $14,000, and subsequent cash flows are $7,000 per year for 3 years. Your company is using WACC of14% for both projects. a. Calculate NPV and IRR for each project, and decide which one to recommend. b. Calculate MIRR for projects A and B. Which project would you recommend based on MIRR? c. Find the crossover rate. What does this rate represent? Describe in YOUR OWN words.
Please answer this problems manually. Thank you
Consider a project to supply your church with 55,000 gallons of hand sanitizer annually for church services. You estimate that you will need an initial Gh¢4,200,000 in terms of investment to get the project started. The project will last for 5 years. The project will bring in annual cash flows of Gh¢1,375,000. It also estimates a salvage value of Gh¢300,000 after dismantling costs. Your cost of capital is 13 percent. Assume no taxes or depreciation. Required: What is the NPV of the sanitizer project? Should you pursue this project?
You can use machine A with an initial investment of $1,000 and a maintenance cost of $7,980 annually for the next five years. Alternatively, you can purchase machine B for $12,000 initial cost today, plus $5,000 annual maintenance with the same 5 years life. At a cost of capital of 15%, you should: Show your Work A. Use machine A and save $600 in equivalent annual annuity. B. Use machine A and save $302 in equivalent annual annuity. C. Use the machine B and save $596 in equivalent annual annuity. D. Buy the machine C and save $600 in equivalent annual annuity. E. Buy machine B and save $596 in equivalent annual annuity.
Consider a project to supply your church with 55,000 gallons of hand sanitizer annually for church services. You estimate that you will need an initial Gh¢4,200,000 in terms of investment to get the project started. The project will last for 5 years. The project will bring in annual cash flows of Gh¢1,375,000. It also estimates a salvage value of Gh¢300,000 after dismantling costs. Your cost of capital is 13 percent. Assume no taxes or depreciation. Required: d) You just received additional information that suggests that your base case (answer to a), best case (b) and worst case (c) scenarios have probabilities of 0.35, 0.35 and 0.30 respectively. What will be the expected NPV of the sanitizer project. What about the standard deviation of the sanitizer project? Do you think the project is still viable?
Calculate the NPV based upon the following facts: Bob has just completed the development of a better face shield for health workers. The new product is expected to produce annual revenues of $230,000. Bob requires an investment in an advanced 3D Printer costing $30,000. The project has an expected life of 5 years. The 3D printer will have a $20,000 salvage value at the end of 5 years. Working capital is expected to increase by $80,000 which Bob will recover at the end of the products life cycle. Annual operating expenses are estimated at $200,000. The required rate of return is 4%.
Billabong Tech uses the internal rate of return (IRR) to select projects. Calculate the IRR for each of the following projects and recommend the best project based on this measure. Project T-Shirt requires an initial investment of $ 15,333 and generates cash inflows of $ 7,000 per year for 4 years. Project Board Shorts requires an initial investment of $ 28,500 and produces cash inflows of $ 13,500 per year for 5 years.

SEE MORE QUESTIONS

Recommended textbooks for you

Essentials Of Investments

Finance

ISBN:

9781260013924

Author:

Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Publisher:

Mcgraw-hill Education,

FUNDAMENTALS OF CORPORATE FINANCE

Finance

ISBN:

9781260013962

Author:

BREALEY

Publisher:

RENT MCG

Financial Management: Theory & Practice

Finance

ISBN:

9781337909730

Author:

Brigham

Publisher:

Cengage

Foundations Of Finance

Finance

ISBN:

9780134897264

Author:

KEOWN, Arthur J., Martin, John D., PETTY, J. William

Publisher:

Pearson,

Fundamentals of Financial Management (MindTap Cou…

Finance

ISBN:

9781337395250

Author:

Eugene F. Brigham, Joel F. Houston

Publisher:

Cengage Learning

Corporate Finance (The Mcgraw-hill/Irwin Series i…

Finance

ISBN:

9780077861759

Author:

Stephen A. Ross Franco Modigliani Professor of Financial Economics Professor, Randolph W Westerfield Robert R. Dockson Deans Chair in Bus. Admin., Jeffrey Jaffe, Bradford D Jordan Professor

Publisher:

McGraw-Hill Education

Essentials Of Investments

Finance

ISBN:

9781260013924

Author:

Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Publisher:

Mcgraw-hill Education,

FUNDAMENTALS OF CORPORATE FINANCE

Finance

ISBN:

9781260013962

Author:

BREALEY

Publisher:

RENT MCG

Financial Management: Theory & Practice

Finance

ISBN:

9781337909730

Author:

Brigham

Publisher:

Cengage

Foundations Of Finance

Finance

ISBN:

9780134897264

Author:

KEOWN, Arthur J., Martin, John D., PETTY, J. William

Publisher:

Pearson,

Fundamentals of Financial Management (MindTap Cou…

Finance

ISBN:

9781337395250

Author:

Eugene F. Brigham, Joel F. Houston

Publisher:

Cengage Learning

Corporate Finance (The Mcgraw-hill/Irwin Series i…

Finance

ISBN:

9780077861759

Author:

Stephen A. Ross Franco Modigliani Professor of Financial Economics Professor, Randolph W Westerfield Robert R. Dockson Deans Chair in Bus. Admin., Jeffrey Jaffe, Bradford D Jordan Professor

Publisher:

McGraw-Hill Education

SEE MORE TEXTBOOKS