Crane Company is considering three long-term capital investment proposals. Each investment has a useful life of 5 years. Relevantdata on each project are as follows.Project BonoProject EdgeProject ClaytonCapital investment$163,000$175,000$204,000Annual net income:Year 114,42018,54027,810214,42017,51023,690314,42016,48021,630414.42012,36013,390514,4209,27012,360Total$72,100$74,160$98,880Depreciation is computed by the straight-line method with no salvage value. The company's cost of capital is 15%. (Assume that cashflows occur evenly throughout the year.)Click here to view PV table.

Based on the information in the table, Project Clayton appears to be the most profitable investment…

Answered: Crane Company is considering three…

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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Vermont Technology is considering a project that would last for 3 years and have a cost of capital of 21.72 percent. The relevant level of net working capital for the project is expected to be $1,990.00 immediately (at year 0); $4,830.00 in 1 year; $15,200.00 in 2 years; and $0.00 in 3 years. Relevant expected revenue, costs, depreciation, and cash flows from capital spending in years 0, 1, 2, and 3 are presented in the following table. The tax rate is 50.00 percent. What is the net present value of this project? Year 0 Revenue $0.00 Costs $0.00 Depreciation $0.00 Cash flows from capital spending $-$7,130.00 Year 1 Year 3 $12,700.00 $12,700.00 $12,700.00 $4,020.00 $4,020.00 $4,020.00 $1,950.00 $1,950.00 $1,950.00 $0.00 Year 2 $0.00 $4,180.00 $3,195.22 (plus or minus $10) -$5,233.42 (plus or minus $10) -$8,995.62 (plus or minus $10) $5,002.99 (plus or minus $10) O None of the above is within $10 of the correct answer
The Fizzy Beverage Co. is considering two alternative capital projects. Project 1: expansion of its existing traditional line of Fizzy beverages. Project 2: introduction of a new “healthy” line of beverages. The company has already spent $1,400,000 on research into the feasibility of these projects and has arrived at the following financial projections. · Both projects are estimated to have a life of 5 years. The required fixed asset investment or capital spending for project 1 is $30,000,000 and for project 2 is $35,000,000. Fixed assets will be depreciated straight line to zero. Fixed asset salvage value estimate for project 1 is $6,200,000 and for project 2 is $8,500,000 · In order to support anticipated sales, either project will require an increase in inventory of $8,600,000, an increase in accounts receivable of $2,800,000, and an increase in accounts payable of $6,300,000 · Cost of goods sold is projected at 35% of sales for either project. Selling,…
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Jacob Inc. is considering a capital expansion project. The initial investment of undertaking this project is $188,500. This expansion project will last for five years. The net operating cash flows from the expansion project at the end of year 1, 2, 3, 4 and 5 are estimated to be $28,500, $38,780, $58,960, $77,680 and $95,380 respectively. Jacob has a weighted average cost of capital of 18%. What is the modified internal rate of return if Jacob undertakes this project. Assuming that the positive cash inflow from undertaking this project will be reinvested at the weighted average cost of capital.
There are two projects under consideration by the Rainbow factory. Each of the projects will require an initial investment of $34,000 and is expected to generate the following cash flows: First Year Second Year Third Year Total Alpha Project $32,000 $22,000 $5,000 $59,000 Beta Project 8,000 23,500 28,000 59,500 Present value and future values table: https://openstax.org/books/principles-managerial-accounting/pages/time-value-of-money A. If the discount rate is 12%, compute the NPV of each project. Round your present value factor to three decimal places and final answer to answer to 2 decimal places. Alpha Project $_________ Beta Project $________ B. Which project should be recommended. _____________
Walsh Company is considering three independent projects, each of which requires a $3 million investment. The estimated internal rate of return (IRR) and cost of capital for these projects are presented here: Project H (high risk): Cost of capital Project M (medium risk): Project L (low risk): Cost of capital Cost of capital = 15% = 11% = 8% IRR = 19% IRR = 12% IRR = 7% Note that the projects' costs of capital vary because the projects have different levels of risk. The company's optimal capital structure calls for 50% debt and 50% common equity, and it expects to have net income of $4,443,000. If Walsh establishes its dividends from the residual dividend model, what will be its payout ratio? Round your answer to two decimal places. %
You are responsible to manage an IS project with a 4-year horizon. The annal cost of the project is estimated at $40,000 per year, and a one-time costs of $120,000. The annual monetary benefit of the project is estimated at $96,000 per year with a discount rate of 6 percent. a. Calculate the overall return on investment (ROI) of the project. b. Perform a break-even analysis (BEA). At what year does break-even occur?
A project requires an increase in inventories, accounts payable, and accounts receivable of $125,000, $70,000, and $65,000, respectively. If opportunity cost of capital is 1% and the project has a life of 19 years, and the working capital investments will be recovered at the end of the life of the project, what is the effect on the NPV of the project? Enter your answer rounded to two decimal places. Enter your response below. Number
You are evaluating three mutually exclusive public-works projects with the respective costs and benefits included in the table below. The useful life of each of the projects is 30 years and MARR is 12% annually. Should any of the projects be selected? (Hint: use incremental B-C Analysis) A B C Capital Investment $10,500,000 $12,000,000 $14,000,000 Annual Operating and Maintenance Costs $850,000 $925,000 $930,000 Market Value $1,350,000 $1,950,000 $2,100,000 Annual Benefit $2,250,000 $2,565,000 $2,700,000
Consider the project balances in the table below for a typical investment project with a service life of four years. An Project Balance - $13,000 - $13,000 - 11,500 CO n 0 1 2 3 4 - 2,425 (a) Determine the interest rate used in computing the project balance. The interest rate is %. (Round to the nearest whole number.) - 9,500 - 8,500 100
A project with an initial outlay of $400 has an economic life of 5 years. The project after-tax cash flows are $150 in Years 1 & 2, then after-tax cash flows of $100 in Years 3 through 5. Calculate the internal rate of return, net present value and profitability index using an interest rate of 12%.
4.) Two mutually exclusive alternative public works projects are under consideration. Their respective costs and benefits are included in the table below. Project A has an anticipated life of 35 years, and the useful life of Project B has been estimated to be 25 years. If the interest rate is 9%, which, if either, of these projects should be selected? Capital investment Annual oper. & maint. costs Annual benefit Useful life of project (years) PROJECT A 375,000 60,000 122,500 35 PROJECT B 312,500 55,000 115,000 25

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