The prospective exploration for oil in the outer continental shelf by a small, independent drilling company has produced a rather curious pattern of cash flows as follows: EOY Net Cash Flow 0 -548462 1-10 $200,000 10 -$1,500,000 The $1,500,000 expenses at EOY 10 will be incurred by the company in dismantling the drilling rig. Customarily, the company expects to earn at least 20 % per year on invested capital before taxes. Determine the ERR. (HINT: use percentage, but omit percent symbol).
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- The Marigold Company is planning to purchase $577,000 of equipment with an estimated seven-year life and no estimated salvage value. The company has projected the following annual cash flows for the investment. Year 1 2 3 456 7 Total Projected Cash Flows $214,000 169,500 124,500 Payback period 55,200 55,200 48,500 The company 48,500 (a) Calculate the payback period for the proposed equipment purchase. Assume that all cash flows occur evenly throughout the year. $715,400 years and (b) If Marigold requires a payback period of 4 years or less, should the company make this investment? months. make this investment.Beyer Company is considering the purchase of an asset for $400,000. It is expected to produce the following net cash flows. The cash flows occur evenly within each year. Year 1 Year 2 $80,000 Year 3 Year 4 Year 5 Total Net cash flows $80,000 $70,000 $200,000 $15,000 $445,000 Compute the payback period for this investment. (Cumulative net cash outflows must be entered with a minus sign. Round your Payback Period answer to 2 decimal place.) Cumulative Net Cash Inflow Year Cash Inflow (Outflow) (Outflow) 2$ (400,000) 3 4 Payback period = 2.Sanka Company is considering the purchase of an asset for $360,000. It is expected to produce the following net cash flows. The cash flows occur evenly within each year. Year 1 Year 2 Year 3 Year 4 Year 5 Total Net cash flows $80,000 $50,000 $70,000 $250,000 $13,000 $463,000 Compute the payback period for this investment. (Cumulative net cash outflows must be entered with a minus sign. Round your Payback Period answer to 2 decimal place.) Cumulative Net Cash Inflow Year Cash Inflow (Outflow) (Outflow) $ (360,000) 1 3 4 Payback period %3D
- The Amani Company is planning a $200,000 equipment investment that has an estimated eight-year life with no estimated salvage value. The company has projected the following annual cash flows for the investment. Year Cash Inflows $120,000 $70,000 $60,000 $60,000 $60,000 Total $370,000 1 4. Assuming that the cash inflows occur evenly over the year, what is the payback period for the investment? (Ignore income taxes in this problem.)Beyer Company is considering buying an asset for $270,000. It is expected to produce the following net cash flows. Year Year 1 $66,000 Initial investment Year 1 Year 2 Year 3 Year 4 Year 5 Total Net Cash Flows Net cash flows Compute the payback period for this Investment. (Cumulative net cash outflows must be entered with a minus sign. Round your Payback Perlod answer to 2 decimal places.) $ (270,000) Year 2 $39,000 Payback period = Year 3 $67,000 Cumulative Cash Flows Year 4 $200,000 Year 5 $22,000Beyer Company is considering the purchase of an asset for $320,000. It is expected to produce the following net cash flows. The cash flows occur evenly within each year. Year 1 Year 2 Year 3 Year 4 Year 5 Total Net cash flows $ 76,000 $ 44,000 $ 70,000 $ 250,000 $ 17,000 $ 457,000 Compute the payback period for this investment. (Cumulative net cash outflows must be entered with a minus sign. Round your Payback Period answer to 2 decimal place.)
- he Novak Company is planning to purchase $502,100 of equipment with an estimated seven-year life and no estimated salvage value. The company has projected the following annual cash flows for the investment. Year Projected Cash Flows 1 $193,500 2 141,500 3 94,500 4 79,200 5 79,200 6 45,000 7 45,000 Total $677,900 (a) Calculate the payback period for the proposed equipment purchase. Assume that all cash flows occur evenly throughout the year. Payback period years and months. (b) If Novak requires a payback period of three years or less, should the company make this investment? The company should notshould make this investment.Accounting Rate of Return Each of the following scenarios is independent. Assume that all cash flows are after-tax cash flows. Cobre Company is considering the purchase of new equipment that will speed up the process for extracting copper. The equipment will cost $4,100,000 and have a life of 5 years with no expected salvage value. The expected cash flows associated with the project are as follows: Year Cash Revenues Cash Expenses 1 $6,000,000 $4,800,000 2 6,000,000 4,800,000 3 6,000,000 4,800,000 4 6,000,000 4,800,000 5 6,000,000 4,800,000 Emily Hansen is considering investing in one of the following two projects. Either project will require an investment of $75,000. The expected cash revenues minus cash expenses for the two projects follow. Assume each project is depreciable. Year Project A Project B 1 $22,500 $22,500 2 30,000 30,000 3 45,000 45,000 4 75,000 22,500 5 75,000 22,500 Suppose that a…Accounting Rate of Return Each of the following scenarios is independent. Assume that all cash flows are after-tax cash flows. Cobre Company is considering the purchase of new equipment that will speed up the process for extracting copper. The equipment will cost $3,600,000 and have a life of 5 years with no expected salvage value. The expected cash flows associated with the project are as follows: Year Cash Revenues Cash Expenses 1 $6,000,000 $4,800,000 2 6,000,000 4,800,000 3 6,000,000 4,800,000 4 6,000,000 4,800,000 5 6,000,000 4,800,000 Emily Hansen is considering investing in one of the following two projects. Either project will require an investment of $75,000. The expected cash revenues minus cash expenses for the two projects follow. Assume each project is depreciable. Year Project A Project B 1 $22,500 $22,500 2 30,000 30,000 3 45,000 45,000 4 75,000 22,500 5 75,000 22,500 Suppose that a…
- Beyer Company is considering buying an asset for $230,000. It is expected to produce the following net cash flows. Year 1 Year 3 Year 4 Year 5 $53,000 $64,000 $150,000 $26,000 Net cash flows Compute the payback period for this investment. (Cumulative net cash outflows must be entered with a minus sign. Round your Payback Period answer to 2 decimal places.) Year Initial investment Year 1 Year 2 Year 3 Year 4 Year 5 Total Net Cash Flows $ (230,000) Year 2 $35,000 Payback period Cumulative Cash FlowsTipton Corporation has gathered the following data on a proposed investment project (Ignore income taxes.): Investment required in equipment Annual cash inflows Salvage value of equipment Life of the investment Required rate of return O 5 years O 15 years O2 years O 7.143 years $ 30,000 $ 6,000 $0 Chapter 8 15 10 The company uses straight-line depreciation on all equipment. Assume cash flows occur uniformly throughout a year except for the initial investment. The payback period for the investment is: years %The L-S Mining Company is planning to open a new strip mine in western Pennsylvania. The net investment required to open the mine is $9 million. Net cash flows are expected to be +$17 million at the end of year 1 and +$11 million at the end of year 2. At the end of year 3, L-S will have a net cash outflow of $21 million to cover the cost of closing the mine and reclaiming the land. Use Table II to answer the questions. Calculate the net present value of the strip mine if the cost of capital is 3, 9, 11, 77, 87, and 92 percent. Enter your answers in millions. For example, an answer of $1.20 million should be entered as 1.20, not 1,200,000. Round your answers to two decimal places. k NPV 3% $ million 9% $ million 11% $ million 77% $ million 87% $ million 92% $ million What is unique about this project? The NPV is negative at discount rates between % and %, positive from % to % and negative beyond %. Should the project be accepted if L-S's cost of…