Exercise 10-13A (Algo) Determining the payback period with uneven cash flows LO 10-4Baird Company has an opportunity to purchase a forklift to use in its heavy equipment rental business. The forklift would be leased onan annual basis during its first two years of operation. Thereafter, it would be leased to the general public on demand. Baird would sellit at the end of the fifth year of its useful life. The expected cash inflows and outflows follow:YearYear 1Year 1Year 2Year 3.Year 3.Year 4Year 5Year 5Nature of ItemPurchase price.RevenueRevenueRevenueMajor overhaulRevenueRevenueSalvage valueCash Inflow$31, 00031, 00026,00017,00015,0007,000Cash Outflow$79, 800a. Payback period (accumulated cash flows)b. Payback period (average cash flows)8, 200Requireda.&b. Determine the payback period using the accumulated and average cash flows approaches.Note: Round your answers to 1 decimal place.yearsyears Exercise 10-12A (Algo) Determining the payback period LO 10-4Munoz Airline Company is considering expanding its territory. The company has the opportunity to purchase one of two different usedairplanes. The first airplane is expected to cost $22,140,000; it will enable the company to increase its annual cash inflow by$5,400,000 per year. The plane is expected to have a useful life of five years and no salvage value. The second plane costs$44,640,000; it will enable the company to increase annual cash flow by $9,300,000 per year. This plane has an eight-year useful lifeand a zero salvage value.Requireda1. Determine the payback period for each investment alternative.a2. Identify the alternative Munoz should accept if the decision is based on the payback approach.Note: Round your answers to 1 decimal place.a-1. Alternative 1 (First plane)a-1. Alternative 2 (Second plane)a-2. Munoz should acceptPayback PeriodyearsyearsO Show Transcribed TextExercise 10-8A (Algo) Determining the cash flow annuity with income tax considerations LO 10-2To open a new store, Finch Tire Company plans to invest $275,000 in equipment expected to have a five-year useful life and nosalvage value. Finch expects the new store to generate annual cash revenues of $320,000 and to incur annual cash operatingexpenses of $188,000. Finch's average income tax rate is 35 percent. The company uses straight-line depreciation.Year 1Year 2Year 3Year 4ÚRequiredDetermine the expected annual net cash inflow from operations for each of the first four years after Finch opens the new store.Note: Negative amounts should be indicated by a minus sign.Net cash Inflow or Outflow

It represents the period in which the initial cost of investment is recovered. It is estimated by…

Exercise 10-13A (Algo) Determining the payback period with uneven cash flows LO 10-4 Baird Company has an opportunity to purchase a forklift to use in its heavy equipment rental business. The forklift would be leased on an annual basis during its first two years of operation. Thereafter, it would be leased to the general public on demand. Baird would sell it at the end of the fifth year of its useful life. The expected cash inflows and outflows follow: Cash Inflow Year Year 1 Year 1 Year 2 Year 3 Year 3 Year 4 Year 5 Year 5 Nature of Item Purchase price Revenue Revenue Revenue Major overhaul Revenue Revenue Salvage value $31,000 31,000 26,000 17,000 15,000 7,000 Cash Outflow $79, 800 a. Payback period (accumulated cash flows) b. Payback period (average cash flows) 8, 200 Required a.&b. Determine the payback period using the accumulated and average cash flows approaches. Note: Round your answers to 1 decimal place. years years

Exercise 10-13A (Algo) Determining the payback period with uneven cash flows LO 10-4 Baird Company has an opportunity to purchase a forklift to use in its heavy equipment rental business. The forklift would be leased on an annual basis during its first two years of operation. Thereafter, it would be leased to the general public on demand. Baird would sell it at the end of the fifth year of its useful life. The expected cash inflows and outflows follow: Cash Inflow Year Year 1 Year 1 Year 2 Year 3 Year 3 Year 4 Year 5 Year 5 Nature of Item Purchase price Revenue Revenue Revenue Major overhaul Revenue Revenue Salvage value $31,000 31,000 26,000 17,000 15,000 7,000 Cash Outflow $79, 800 a. Payback period (accumulated cash flows) b. Payback period (average cash flows) 8, 200 Required a.&b. Determine the payback period using the accumulated and average cash flows approaches. Note: Round your answers to 1 decimal place. years years

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

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k algo 10-31 Cash Flows And NPV The Bruin's Den Outdoor Gear is considering a new 6-year project to produce a new tent line. The equipment necessary would cost $1.29 million and be depreciated using straight-line depreciation to a book value of zero. At the end of the project, the equipment can be sold for 15 percent of its initial cost. The company believes that it can sell 23,500 tents per year at a price of $64 and variable costs of $25 per tent. The fixed costs will be $395,000 per year. The project will require an initial investment in net working capital of $193,000 that will be recovered at the end of the project. The required rate of return is 10.7 percent and the tax rate is 21 percent. What is the NPV?
Terminal cash flowlong dash—Various lives and sale prices Looner Industries is currently analyzing the purchase of a new machine that costs $ 165 comma 000$165,000 and requires $ 19 comma 600$19,600 in installation costs. Purchase of this machine is expected to result in an increase in net working capital of $ 29 comma 800$29,800 to support the expanded level of operations. The firm plans to depreciate the machine under MACRS using a 5-year recovery period (see the table LOADING... for the applicable depreciation percentages) and expects to sell the machine to net $ 9 comma 500$9,500 before taxes at the end of its usable life. The firm is subject to a 40 %40% tax rate. a. Calculate the terminal cash flow for a usable life of (1) 3 years, (2) 5 years, and (3) 7 years. b. Discuss the effect of usable life on terminal cash flows using your findings in part a. c. Assuming a 5-year usable life, calculate the terminal cash flow if the machine were sold to net (1) $ 9 comma…
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Exercise 10-12A (Algo) Determining the payback period LO 10-4 Fanning Airline Company is considering expanding its territory. The company has the opportunity to purchase one of two different used airplanes. The first airplane is expected to cost $14,800,000; It will enable the company to Increase its annual cash Inflow by $3,700,000 per year. The plane is expected to have a useful life of five years and no salvage value. The second plane costs $34,800,000; It will enable the company to increase annual cash flow by $5,800,000 per year. This plane has an eight-year useful life and a zero salvage value. Required *1. Determine the payback period for each Investment alternative. a2. Identify the alternative Fanning should accept if the decision is based on the payback approach. Note: Round your answers to 1 decimal place. a-1. Alternative 1 (First plane) a-1. Alternative 2 (Second plane) a-2. Fanning should accept Payback Period years years
Question 3 You are working as a finance manager for Fire Fox Transport Ltd. The company is considering to invest in one of the two following projects to buy a new equipment for their storage which is expected to boost the company’s revenue. Each equipment will last 5 years and have no salvage value at the end. The company’s required rate of return for all investment projects is 9.5%. The cash flows of the projects are provided below. Equipment 1 Equipment 2 Cost $157,000 $182,000 Future Cash Flows Year 1 Year 2 Year 3 Year 4 Year 5 67 000 82 000 78 000 64 000 56 000 83 000 94 000 80 000 77 000 73 000 Required: Identify which option of equipment should the company accept based on Net Present Value (NPV) method? Identify which option of equipment should the company accept based on discounted pay back method if the payback criterion is maximum 3 years?
exer 3
Exercise 16-36 Payback Period; Uneven Cash Flows (Section 3) (LO 16-1, 16-6, 16-8) Allegience Insurance Company's management is considering an advertising program that would require an initial expenditure of $165,500 and bring in additional sales over the next five years. The projected additional sales revenue in year 1 is $75,000, with associated expenses of $25,000. The additional sales revenue and expenses from the advertising program are projected to increase by 10 percent each year. Allegience's tax rate is 40 percent. (Hint: The $165,500 advertising cost is an expense.) Use Appendix A for your reference. (Use appropriate factor(s) from the tables provided.) Required: 1. Compute the payback period for the advertising program. 2. Calculate the advertising program's net present value, assuming an after-tax hurdle rate of 10 percent. (Round your intermediate and final answers to the nearest whole dollar.) 1. Payback period years 2. Net present value
Exercise 16-26 Internal Rate of Return; Uneven Cash Flows (Section 1) (LO 16-1) The trustees of the Danube School of Art and Music, located in Tuttlingen, Germany, are considering a major overhaul of the school's audio system. With or without the overhaul, the system will be replaced in two years. If an overhaul is done now, the trustees expect to save the following repair costs during the next two years: year 1, 3,900 euros; year 2, 5,900 euros. The overhaul will cost 7,957 euros. (The euro is used in most European markets.) Use Appendix A for your reference. (Use appropriate factor(s) from the tables provided.) Required: Use trial and error to compute the Internal rate of return on the proposed overhaul. (Hint: The NPV of the overhaul is positive if an 10 percent discount rate is used, but the NPV is negative if a 18 percent rate is used.) Internal rate of return %
Exercise 16-34 Profitability Index; Taxes (Section 2) (LO 16-7) The owner of Atlantic City Confectionary is considering the purchase of a new semiautomatic candy machine. The machine will cost $23,000 and last 9 years. The machine is expected to have no salvage value at the end of its useful life. The owner projects that the new candy machine will generate $3,500 in after-tax savings each year during its life (including the depreciation tax shield). Use Appendix A for your reference. (Use appropriate factor(s) from the tables provided.) Required: Compute the profitability index on the proposed candy machine, assuming an after-tax hurdle rate of (a) 8 percent, (b) 1O percent, and (c) 12 percent. (Round your final answers to 2 decimal places.) Profitability Index (a) 8 percent (b) 10 percent (c) 12 percent

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