Exercise 1 The Sunshine company is considering two projects, project A and project B. Project A requires the purchase of an equipment but no working capital investment whereas project B requires a working capital investment but no equipment. The relevant information for net present value analysis is given below: Cost of equipment Working capital needed Annual cash inflows Salvage value of equipment Project life Project A Project B $600,000 $160,000 $ 40,000 8 years $600,000 $120,000 8 years The working capital required for project B will be released at the end of project life. Sunshine company uses an 18% discount rate. Select the best investment using net present value (NPV) method. (Ignore income tax).

Exercise 1 The Sunshine company is considering two projects, project A and project B. Project A requires the purchase of an equipment but no working capital investment whereas project B requires a working capital investment but no equipment. The relevant information for net present value analysis is given below: Cost of equipment Working capital needed Annual cash inflows Salvage value of equipment Project life Project A Project B $600,000 $160,000 $ 40,000 8 years $600,000 $120,000 8 years The working capital required for project B will be released at the end of project life. Sunshine company uses an 18% discount rate. Select the best investment using net present value (NPV) method. (Ignore income tax).

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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QI\ a contractor want to invest his money in one of projects A or B if you know that the interest rate is 10%, choose the best altemative A or B using net present worth method ? A. B. Initial Investment 120,000 CU 135,000 CU Annual revenue Annual expenses Salvage vahie |Project life Cost of machines replaced every 3 years 15,000 CU\year 10,000 CU year 12,000 CU 12 years 17,000 CU year 11,000 CU year 20,000 CU 6 усars 3500 CU 3000 CU Q2 A company is planning to purchase a new equipment to increase the production and revemies. The cost of the equipment is 451105 CU and the equipment installation cost is 17% of its cost. Find the payback period for this equipment Year 1 Year 2 120,000 CU 130,000 CU 90,000 CU Year 3 Year 4 |100,000 CU Year 5 115,000 CU 90,000 CU Year 6 Q3 \ Machinery costs (60000 CU) and its useful life is (5 year). compute the schedule of depreciation and book value at the end of each year for the machinery by using the Sum of Year Digit method , if you know that the…
Current Attempt in Progress Blossom Company is considering three capital expenditure projects. Relevant data for the projects are as follows. Annual Life of Project Investment Income Project 22A $240,400 $16,700 6 years 23A 273,200 20,740 9 years 24A 281,300 15,700 7 years Annual net income is constant over the life of the project. Each project is expected to have zero salvage value at the end of the project. Blossom Company uses the straight-line method of depreciation. Click here to view PV table. (a) Determine the internal rate of return for each project. (Round answers O decimal places, e.g. 13%. For calculation purposes, use 5 decimal places as displayed in the factor table provided.) Project 22A 23A 24A Internal Rate of Return % do % %
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ic Yo NS io cer ist bun ngs nnée Current Attempt in Progress Blossom Manufacturing Co. is evaluating two projects. The company uses payback criteria of three years or less. Project A has a cost of $905,000, and project B's cost is $1,247,300. Cash flows from both projects are given in the following table. Year 1 2 3 4 Project A $86,212 313,562 427,594 285,552 Project B $586,212 413,277 231,199 What are their discounted payback periods? (Round answers to 2 decimal places, e.g. 15.25. If discounted payback period exceeds life of the project, enter 0.00 for the answer.) Discounted payback period of project A Discounted payback period of project B will he accepted with a discount rate of 8 percent? átv zoom
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How do you calculate net investment in working capital, net cash flows, present value of net cash flows, and NPV? WACC is 10.10%
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1. Green Rose Inc. is considering these following investments for year 2022: Machine A Machine B Machine C Initial amount 450,000 375,000 425,000 Salvage Value 75,000 67,000 58,000 Cost savings 66,730 73,425 63,950 The following cost are associated to each of the machines: • Inspection cost 3,000 • Installation cost 3.500 • Warranties 2,700 • Testing cost 4,300 • Training 4,500 a) Determine the Net investment of each Machine. b) Determine the accounting rate of return. c) Which of these investments would Green Rose Inc. purse if the required rate of return is 18%?
Question 2 Two possible routes for a power line are under study. Data on the routes are as shown in the following table: Option Information Length First Cost Maintenance cost Useful Life (years) Salvage Value Yearly power loss Annual Taxes Around the Lake Under the Lake 15 km 5 km $25,000 /km $400/km/yr $5000 / km $200/km/yr 15 20 $3000/km S5000/km S500/km |2% of the first cost 2% of the first cost S500/km If MARR = 10%, which alternative should you select? Justify your answer. (
9

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