Dixie Dynamite Company is evaluating two methods of blowing up old buildings for commercial purposes over the next five years.Method one (implosion) is relatively low in risk for this business and will carry a 13 percent discount rate. Method two (explosion) is lessexpensive to perform but more dangerous and will call for a higher discount rate of 17 percent. Either method will require an initialcapital outlay of $92,000. The inflows from projected business over the next five years are shown next.Years Method 1 Method 212345$31,100 $20,80037,20024,40044,60042,20038,80037,30019,20070,900Use Appendix B for an approximate answer but calculate your final answers using the formula and financial calculator methods.a. Calculate net present value for Method 1 and Method 2. (Do not round intermediate calculations and round your answers to 2decimal places.)Method 1Method 2Net Present Valueb. Which method should be selected using net present value analysis?Method 1Method 2ONeither of these

The difference between the current value of cash inflows and outflow of cash over a period of time…

Answered: Dixie Dynamite Company is evaluating…

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

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Joanette, Incorporated, is considering the purchase of a machine that would cost $430,000 and would last for 5 years, at the end of which, the machine would have a salvage value of $43,000. The machine would reduce labor and other costs by $103,000 per year. Additional working capital of $5,000 would be needed immediately, all of which would be recovered at the end of 5 years. The company requires a minimum pretax return of 16% on all investment projects. (Ignore income taxes.) Click here to view Exhibit 148-1 and Exhibit 14B-2, to determine the appropriate discount factor(s) using the tables provided Required: Determine the not present value of the project. (Negative amount should be indicated by a minus sign. Round your intermediate calculations and final answer to the nearest whole dollar amount.) Net present value
Ebay is considering an investment into a project which it intends to operate for 5 years. The project requires an initial outlay of $6 million. The project will generate cash sales of $2.5 million in the first year. Sales will grow by $1 million each year in the following two years. After the third year, sales will grow by 7%. Cash operating costs, excluding depreciation, will be 20% of sales. Depreciation expenses will be 10% of sales. There are no cash flows associated with the salvage value or the net working capital. Ebay’s tax rate is 30%. What is the IRR of this project? (Round to the nearest two digits)
Spacevoyage Inc. is considering the installation of a new experimental laboratory which requires a key equipment costing $5,000,000. It is expected that the equipment will generate important experimental material worth $2,000,000 for each of the next 5 years. In the 6th year, the equipment will need an upgrade costing $2,500,000. Required return for this project is 15%. a) Which capital budgeting method between NPV and IRR will be most suitable for arriving at a decision on whether or not to get the equipment installed? Briefly explain your reasons. b) Should the new equipment be installed? Support your answer with relevant computation.
Giant Equipment Ltd. is considering two projects to invest next year. Both projects have the same start-up costs. Project A will produce annual cash flows of $42,000 at the beginning of each year for eight years. Project B will produce cash flows of $48,000 at the end of each year for seven years. The company requires a 12% return. Which project should the company select and why?
A construction management company is examining its cash flow requirements for the next few years. The company expects to replace software and in-field computing equipment at various times. Specifically, the company expects to spend $5,000 1 year from now, $11,000 3 years from now, and $17,000 each year in years 6 through 10. What is the future worth in year 10 of the planned expenditures, at an interest rate of 13.00% per year? (Round the final answer to three decimal places.) The future worth is determined to be $
Schultz company is considering purchasing a machine that would cost $478,800 and have a useful life of 5 years. The machinery would reduce cash operating costs by $114,000 per year. The machine would have a salvage value of $6,200. Schultz Company prefers a payback period if 3.5 years or less. compute the return on average investment.
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
Atlantic Manufacturing is considering a new investment project that will last for four years. The delivered and installed cost of the machine needed for the project is $23,957 and it will be depreciated according to the three-year MACRS schedule. The project also requires an initial increase in net working capital of $300. Financial projections for sales and costs are in the table below. In addition, since sales are expected to fluctuate, NWC requirements will also fluctuate. The end-of- year NWC requirements are included below (hint: these NWC capital requirements DO NOT represent the change in NWC for the period). The $0 requirement for NWC at the end of year 4 means that all NWC is recovered by the end of the project. The corporate tax rate is 35% and the required return on the project is 12%. Year 1 2 3 4 Sales $11,653 $12,746 $13,973 $10,638 Costs 2,322 2,536 3,456 1,434 NWC 324 352 231 0 Requirements What is the project's NPV? (Round answer to O decimal places. Do not round…
Fossa Road Paving Corporation is considering an investment in a curb-forming machine. The machine will cost $240,000, will last 10 years, and will have a $40,000 salvage value at the end of 10 years. The machine is expected to generate net cash inflows of $60,000 per year in each of the 10 years. Fossa's discount rate is 18%. The net present value of the proposed investment is closest to (Ignore income taxes.): Click here to view Exhibit 12B-1 and Exhibit 12B-2, to determine the appropriate discount factor(s) using the tables provided. Multiple Choice $69,640 $37,280 $(48,780) $5,840
Firm Z has invested $4 million in marketing campaign to assess the demand for the product Minish. This product will be in the market next year and will last five years. Revenues are projected to be $50 million per year along with expenses of $20 million. The firm spends $15 million immediately on equipment that will be depreciated using MACRS depreciation to zero. Additionally, it will use some fully depreciated existing equipment that has a market value of $4 million. Finally, Minish will have no incremental cash or inventory requirements (products will be shipped directly from the contract manufacturer to customers). But, receivables are expected to account for 15% of annual sales. Payables are expected to be 15% of the annual cost of goods sold (COGS) between year 1 and year 4. All accounts payables and receivables will be settled at the end of year 5. Based on this information and WACC in the first part of the question, find the NPV of the project. Identify the IRR of the…
Brown Company is considering purchasing a machine that would cost $320,000 and would last for 6 years. At the end of 6 years, the machine would have a salvage value of $50,000. The machine would provide annual cost savings of $75,000. The company requires a rate of return of 11% on all investment projects. What is the net present value of the proposed project? (Select the answer that is closest to your calculations.) Present value tables are provided below. Present Value of $1 Table (Exhibit 11B-1) (Partial table) Periods 4% 5% 6% 7% 8% 9% 10% 11 12% 13% 14% 0.962 0.952 0.943 0.935 0.926 0.917 0.909 0.901 0.893 0.885 0.877 0.925 0.907 0.890 0.873 0.857 0.842 0.826 0.812 0.797 0.783 0.769 0.889 0.864 0.840 0.816 0.794 0.772 0.751 0.731 0.712 0.693 0.675 0.855 0.823 0.792 0.763 0.735 0.708 0.683 0.659 0.636 0.613 0.592 0.822 0.784 0.747 0.713 0.681 0.650 0.621 0.593 0.567 0.543 0.519 1 2. 4 5. 6 0.790 0.746 0.705 0.666 0.630 0.596 0.564 0.535 0.507 0.480 0.456 0.760 0.711 0.665 0.623…
GeoSourcex is considering opening a new titanium mine. Once in operation, the mine is expected to produce positive net cash flows in perpetuity starting 3 years from now at $19.5 million per year but declining at a constant rate of 1.8% per year. The costs of getting the mine operational include an immediate payment of $110.0 million to purchase the land and acquire the mineral rights, plus other start -up costs of $10.0 million per year for three years starting in one year. If the project's cost of capital is 10.2% per year (compounded annually) what is the Net Present Value of this new mine?

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