Exercise 16-36 Payback Period; Uneven Cash Flows (Section 3) (LO 16-1, 16-6, 16-8)Alleglence Insurance Company's management is considering an advertising program that would require an initial expenditure of$180,395 and bring in additional sales over the next five years. The projected additional sales revenue in year 1 is $84,000, withassociated expenses of $29,500. The additional sales revenue and expenses from the advertising program are projected to increaseby 10 percent each year. Alleglence's tax rate is 30 percent. (Hint: The $180,395 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 Intermediatecalculations and final answer to the nearest whole dollar)1. Payback period2. Net present valueyearsA

Payback is the period required to recover the initial amount of investment and this is very simple…

Answered: Exercise 16-36 Payback Period; Uneven…

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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Payback comparisons Nova Products has a 4-year maximum acceptable payback period. The firm is considering the purchase of a new machine and must choose between two alternatives. The first machine requires an initial investment of $11,000 and generates annual cash inflows of $2,000 for each of the next 7 years. The second machine requires an initial investment of $10,000 and provides an annual cash inflow of $3,000 for 20 years. a. Determine the payback period for each machine. b. Comment on the acceptability of the machines, assuming that they are independent projects. c. Which machine should the firm buy? Why? d. Does this problem illustrate any of the payback method's weaknesses? a. The payback period for the first machine is The payback period for the second machine is b. Is the first machine acceptable? (Select the best answer below.) Yes No Is the second machine acceptable? (Select the best answer below.) No Yes years. (Round to two decimal places.) years. (Round to two decimal…
Cash Payback Period for a Service Company Chinook Industries Inc. is evaluating two capital investment proposals for a retail outlet, each requiring an investment of $125,000 and each with an eight-year life and expected total net cash flows of $200,000. Location 1 is expected to provide equal annual net cash flows of $25,000, and Location 2 is expected to have the following unequal annual net cash flows: Year 1 $56,000 Year 2 43,000 Year 3 26,000 Year 4 24,000 Year 5 18,000 Year 6 14,000 Year 7 11,000 Year 8 8,000 Determine the cash payback period for both location proposals. Location 1 years Location 2 years
Tips ips Project Cash Flow The financial staff of Cairn Communications has identified the following information for the first year of the roll-out of its new proposed service: Projected sales Operating costs (not including depreciation) Depreciation $24 million $11 million $4 million Interest expense $5 million The company faces a 25% tax rate. What is the project's operating cash flow for the first year (t = 1)? Enter your answer in dollars. For example, an answer of $1.2 million should be entered as $1,200,000. Round your answer to the nearest dollar.
Please solve subpart A,B max 30-45 minutes thank u AmN companies will get capital from several options where the total funds must be obtained of 1.1 billion rupiah. The following is currently available market information:1. Debt interest rate is 12% per year2. State Bonds with minimal risk (risk free) of 5%3. JCI has a market return of 8%4. The company tax applied is 25%5. The company's performance is good so it has a stock Beta of 1.12The available options relate to the source of AmN's company capital, namely from Debt (direct tobank) and Equity (through ordinary shares) with the following explanation:1. Fully capital obtained from debt2. Fully capital obtained from equity3. The DER policy applied is 1/3 (or DER = 0.3333) Based on the narrative above you are asked to:A. Calculate WACC from the three available optionsB. Decide on the best choice with the reasons.
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8. What is a payback period? Alpha Company invested $42,000 in new equipment. The more efficient new equipment was expected to reduce operating cash outflows over the next four years by the following: Year 3 Year 1 Year 2 Year 4 $8,000 $7,000 $5,000 $4,000 Using the averaging method, the payback period for the investment is:
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
Capital Budgets Rambus Inc. would like to purchase a production machine for $325,000. The machine is expected to have a life of three years, and a salvage value of $50,000. Annual maintenance costs will total $12,500. Annual savings are predicted to be $112,500. The company's required rate of return is 12%. Factors: Present Value of $1 (r = 12%)Year 0 1.0000 Year 1 0.8929 Year 2 0.7972 Year 3 0.7118 Required: (1) Using the Present Value Factors for $1, calculate the net present value of this investment (ignoring taxes). (2) Based on your answer in requirement 1, should Rambus purchase the production machine?
Cash Payback Period, Net Present Value Analysis, and Qualitative Considerations The plant manager of Shenzhen Electronics Company is considering the purchase of new automated assembly equipment. The new equipment will cost $72,000. The manager believes that the new investment will result in direct labor savings of $18,000 per year for 10 years. Present Value of an Annuity of $1 at Compound Interest Year 6% 10% 12% 15% 20% 1 0.943 0.909 0.893 0.870 0.833 2 1.833 1.736 1.690 1.626 1.528 3 2.673 2.487 2.402 2.283 2.106 4 3.465 3.170 3.037 2.855 2.589 5 4.212 3.791 3.605 3.353 2.991 6 4.917 4.355 4.111 3.785 3.326 7 5.582 4.868 4.564 4.160 3.605 8 6.210 5.335 4.968 4.487 3.837 9 6.802 5.759 5.328 4.772 4.031 10 7.360 6.145 5.650 5.019 4.192 a. What is the payback period on this project?fill in the blank 1 years b. What is the net present value, assuming a 12% rate of return? Use the table provided above. Round to the nearest whole dollar. Net present value…
Cash payback period for a Service Company Prime Financial Inc. is evaluating two capital investment proposals for a drive-up ATM kiosk, each requiring an investment of $160,000 and each with an eight-year life and expected total net cash flows of $320,000. Location 1 is expected to provide equal annual net cash flows of $40,000, and Location 2 is expected to have the following unequal annual net cash flows: $72,000 Year 1 Year 5 $38,000 Year 2 54,000 Year 6 29,000 34,000 Year 3 Year 7 22,000 Year 8 Year 4 51,000 20,000 Determine the cash payback period for both location proposals. Location 1 years Location 2 years

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