Consider the following project with a 4-year life. If terminated prior to 4 years,the equipment used will have a positive salvage value. Cash flows from theproject and salvage values at various stages are shown in the table below.Choose the optimal operating life of the project. Assume a WACC of 10%.Year Cash FlowSalvage Value0-5,0004,50013,2003,37522,2002,25031,5001,125490001 yearO years3 years2 years4 years

Optimal Operating Life of the ProjectWe can find the most efficient operating life of the challenge…

Answered: Consider the following project with a…

Corporate Fin Focused Approach

5th Edition

ISBN:9781285660516

Author:EHRHARDT

Publisher:EHRHARDT

Chapter11: Cash Flow Estimation And Risk Analysis

Section: Chapter Questions

Problem 2STP

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Roberts Company is considering an investment in equipment that is capable of producing more efficiently than the current technology. The outlay required is 2,293,200. The equipment is expected to last five years and will have no salvage value. The expected cash flows associated with the project are as follows: Required: 1. Compute the projects payback period. 2. Compute the projects accounting rate of return. 3. Compute the projects net present value, assuming a required rate of return of 10 percent. 4. Compute the projects internal rate of return.
Check whether the project is accepted or rejected and recommend the best project, MARR=6% and n=8 years, using Payback period, ROI, NPV, Aw, IRR methods. ID Project I Project II increase Annual Initial Annual cost revenues initial Annual Salvage value annual salvage value running in cost revenues maintenance revnues cost 1910095 280000 60000 2000 28000 400000 72000 2000 40000 12000
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Consider the following project balances for a typical investment project with aservice life of four years: (a) Construct the original cash flows of the project.(b) Determine the interest rate used in computing the project balance.(c) Would this project be acceptable at a MARR of 12%?
A project with the following costs are under consideration to determine its profitability. Using the IRR comparison, and an annual MARR of 10% compounded semiannually, determine if the project should be executed. First cost Semiannual operating cost Semiannual income Salvage value Life in years a. IRR = 18.7% semiannual O b. IRR = 15.3% semiannual Oc. IRR = 16.9% semiannual Od. IRR = 17% semiannual : $45,000 : $10,000 : $20,000 : $20,,000 : 4 years
A project with the following costs are under consideration to determine its profitability. Using the IRR comparison, and an annual MARR of 10% compounded semiannually. determine if the project should be executed. First cost : $51,300 Semiannual operating cost : $10,000 Semiannual income : $20,000 : $20,,000 : 4 years Salvage value Life in years O a. IRR = 15% semiannual O b. IRR 15.83% semiannual O c. IRR 16.9% semiannual O d. IRR 18.7% semiannual
You have been asked to evaluate two alternatives, X and Y, that may increase plant capacity for manufacturing high-pressure hydraulic hoses. The parameters associated with each alternative have been estimated. Which one should be selected on the basis of a present worth comparison at an interest rate of 10% per year? Why is yours the correct choice? Alternative First Cost Maintenance cost, per Year Salvage Value Life X $-25,000 $-8000 $1,000 5 years Y $-55,000 $-2000 $2,000 5 years and that of alternative Y is $1 The present worth of alternative X is $. Alternativ (Click to select) is selected by the company.
A project has an initial cost of $50 000, net annual cash inflows of $20 000, and a $2 000 salvage value after five years. Which of the following gives the project's approximate external rate of return (i*) if MARR=10 percent?
Chee company has gathered the following data on a proposed investment project? Investment required in equipment : 240,000$ Annual cash inflows : 50,000$Salvage value: 0$ Life of the investment: 8 years Requried rate of return : 10% Assets will be depreciated using straight line deperciation method. Required: Using the net Present value and the interval rate of return methods, Is this a good investment?
Consider the following project balances for a typical investment project with athe service life of five years: (a) Fill in the blanks by constructing the original cash flows of the project anddetermining the terminal balance.(b) Determine the interest rate used in the project-balance calculation, andcompute the present worth of this project at the computed interest rate.
Determine the payback period, in years, of a project that is expected to generate $80,000 per year in cash flow. The project cost (initial investment) is $1,100,000. Then, name one other method (excluding payback period) used by financial managers, to assess the viability of a multi-year project. State specifically how the method that you named is different from the payback period method.
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