c. Sabuni Itd is considering expanding its operation by acquiring a new plant in Mombasa. The cost of the plant is 50 million. The new plant is expected to generate the following projected cash flows for a period of 5 years. Year 1 3 Cash 15,000,000 18,000,000 20,000,000 25,000,000 35,00,000 flows Required: Using NPV technique, advise the company on whether to acquire the plant if the discount rate is 10% LERO)
Q: Using payback to make capital investment decisions Henry Co. is considering acquiring a…
A: Payback Period = Initial investment / Annual net cash inflows =…
Q: Terminal cash flow: Various lives and sale prices Looner Industries is currently analyzing the…
A: Terminal cash flow represents the end of the project cash flow which is determined by disposal of…
Q: The Drillago Company is involved in searching for locations in which to drill for oil. The firm’s…
A: Cost of Capital is 13% To Find: NPV
Q: Melton Manufacturing Ltd is considering two alternative investment projects. The first project calls…
A: Answer: Payback Period = Initial investment / Cash flow per year ●Project 1: Renovate Initial Cash…
Q: Determine the payback period for each investment alternative and identify the alternative Stuart…
A: Payback period method: It is the capital budgeting tool used to evaluate the profitability of the…
Q: Perit Industries has $140,000 to invest in one of the following two projects: Project A $ 140,000 $0…
A: Net Present Value is defined as the sum of the present values of all future cash inflows less the…
Q: Maud'Dib Intergalactic has a new project available on Arrakis. The cost of the project is $34,500…
A: Step 1: Identify all the relevant data in the problemCost of project: $34,500*cash flows of $18,600,…
Q: 5. Bullock Gold Mining is evaluating a new gold mine in South Dakota. All of the analysis has been…
A: Net present value is sum of present value of cash flows at a given discount rate. IRR is the…
Q: Melton Manufacturing Ltd is considering two alternative investment projects. The first project calls…
A: We are going to calculate IRR ( Internal Rate of return), Payback period & NPV ( Net Present…
Q: he Novak Company is planning to purchase $502,100 of equipment with an estimated seven-year life and…
A: Payback period: Payback period is the expected time period which is required to recover the cost…
Q: draw the cash flow diagram in the following question : A company is considering constructing a…
A: Solution: Given, Land costs = $300,000 Building costs = $600,000 Equipment costs = $250,000…
Q: The management of SARB Limited must choose between two projects to expand their business operations.…
A: The required rate of return is the minimum return that an investment of project must provide. The…
Q: ead the following case carefully and answer the questions: A company is considering two mutually…
A: "Since you have posted a question with multiple sub-parts, we have solved the first three for you.…
Q: Net Present Value of Project PA. (Round off amounts to the nearest Rand.)
A: Information Provided: Required rate = 15% Year 1 Profit = 8000 Year 2 Profit = 18,000 Year 3 Profit…
Q: a. Select the correct graph for the project's NPV profile. The correct graph is-Select- b. Should…
A:
Q: Jim Jones Sleepaway Camps, Inc. is looking for some payback period analysis for a new project in…
A: The payback period alludes to what extent it takes for a speculator to hit breakeven to recoup the…
Q: Calculate the net present value of the strip mine if the cost of capital is 1, 6, 9, 30, 42, and 75…
A: Net Present Value: It represents the investment's or project's profitability in dollar terms. It is…
Q: The Concord Company is planning to purchase $491,000 of equipment with an estimated 7-year life and…
A: Step 1: Step 2: Step 3: Step 4:
Q: ive typing answer with explanation and conclusion Caspian Sea Drinks is considering the production…
A: Net present value (NPV) is the difference between present value of all cash inflows and initial…
Q: Stuart Airline Company is considering expanding its territory. The company has the opportunity to…
A: Payback period is one of the traditional methods of capital budgeting. It is the period which…
Q: he Drillago Company is involved in searching for locations in which to drill for oil. The firm’s…
A: To Find: Payback period
Q: project cash flows at 10%. Year Renovate Replace 0 –$4,000,000 –$1,300,000 1 2,000,000 1,000,000 2…
A: In order to choose one of alternatives, we will have to calculate the net present value of each…
Q: Sports Indirect Berhad plans to build a new plant to manufacture a new line of sports equipment. The…
A: NET PRESENT VALUE The current total worth of a future stream of payments is calculated using net…
Q: Part 2: Net Present Value 3. An Oklahoma-based company is interested in establishing a small ethanol…
A: Net cash flow = Cash inflow - Cash outflow----
Q: R-Kraine Inc. is considering acquiring an existing project (with financial backing from the…
A: Given: Particulars Amount Current market price $584,608.56760 Face value $800,000.00000…
Q: Courtney Limited has capital project opportunities each of which would require an initial investment…
A: Net Present Value (NPV) is a financial measure used to analyze the profitability of an investment by…
Q: Question: Elsies Limited is considering the purchase of a machine to manufacture some of the spare…
A: Step 1:Introduction: Evaluating the Investment Opportunity for Elsies LimitedElsies Limited is…
Q: i need solution. i.5
A: The objective of the question is to calculate the equivalent annual cost of the project. This…
Q: Caspian Sea Drinks is considering the production of a diet drink. The expansion equipment necessary…
A: Net present Value is the sum of the present value of all the expected cash flows of the project. A…
Q: Calculate the internal rate of return of the project
A: Internal Rate of Return: It is the rate at which the project's NPV (net present value) equals zero.…
Q: You are considering an open-pit mining operation. The cash flow pattern issomewhat unusual since you…
A:
Q: at What is the project's IRR?
A: An internal rate of return is used to determine the profitability of an investment. It is a…
Q: Calculate the net present value of the strip mine if the cost of capital is 3, 9, 11, 77, 87, and 92…
A: Net present value is a capital budgeting tool that helps understand the feasibility of a project.
Q: A mining company is deciding whether to open a strip mine with an initial outlay at t = 0 of $1.5…
A: Part 2: Explanation:Step 1: NPV Profile SketchTo sketch the NPV profile, we plot NPV against…
Q: thern Pole is developing a special vehicle for Antarctic exploration. The development requires…
A: NPV is one time value based method of capital budgeting and can be found as the difference between…
Q: Strip Mining Inc. can develop a new mine at an initial cost of $5 million. The mine will provide a…
A: Net present value refers to the present value of all the cash outflows compared with the initial…
Q: A new project is evaluated at present that involves purchasing a new assembly machine for RO 30,000.…
A: Solution; Annual depreciation on machine = (Cost - Salvage value) / useful life = (RO 32,000 - RO…
Q: Zachary Airline Company is considering expanding its territory. The company has the opportunity to…
A: A financial metric called the payback period is used to assess how long it will take a business to…
Q: The management of SARB Limited must choose between two projects to expand their business operations.…
A: Accounting rate of return refers to the formula that is used for showing the percentage of return…
Q: Melton Manufacturing Ltd is considering two alternative investment projects. The first project calls…
A: Discount rate = 10% Calculation of present value of future cash inflows Year PVF(10%,Year)…
Q: Melton Manufacturing Ltd is considering two alternative investment projects. The first project calls…
A: There are various method for deciding between two projects. The method selected should be…
Q: Vaughn Company is considering two capital investment proposals. Estimates regarding each project are…
A: Cash payback period is the time that is taken by the entity to fully recover the initial cost.
Q: Strip Mining Inc. can develop a new mine at an initial cost of $5 million. The mine will provide a…
A: Net present value refers to the present value of all the cash outflows compared with the initial…
Q: Year 1 23 45 6 Projected Cash Flows $214,000 169,500 124,500 55,200 55,200 48,500
A: A financial metric called the payback period is used to assess how long it will take an investment…
Q: Finch Airline Company is considering expanding its territory. The company has the opportunity to…
A: The payback period refers to the time period in which the cash flows will cover the initial cost of…
Q: Beck Department Stores is considering two possible expansion plans. One proposal involves opening 5…
A: We are given the following details related to the Kentucky proposal:Required: Calculate the NPV of…
Step by step
Solved in 2 steps with 2 images
- The Drillago Company is involved in searching for locations in which to drill for oil. The firm’s current project requires an initial investment of $15 million and has an estimated life of 10 years. The expected future cash inflows for the project are as shown in the following table: Year Cash inflows 1 $ 600,000 2 1,000,000 3 1,000,000 4 2,000,000 5 3,000,000 6 3,500,000 7 4,000,000 8 6,000,000 9 8,000,000 10 12,000,000 The firm’s current cost of capital is 13%. TO DO Create a spreadsheet to answer the following: Calculate the project’s net present value (NPV). Is the project acceptable under the NPV technique? Explain. \ Calculate the project’s internal rate of return (IRR). Is the project acceptable under the IRR technique? Explain. In this case, did the two methods produce the same results? Generally, is there a preference between the NPV and IRR techniques? Explain. d. Calculate the payback period for the…The production department is proposing the purchase of an automatic insertion machine. It has identified 3 machines, each with an estimated life of 10 years. Which machine offers the best internal rate of return? Annual net cash flows Average investment Machine A only Machine B only Machine C only O Machines A and B Machine A $ 50,000 250,000 Machine B $ 40,000 300,000 Machine $ 75,000 500,000Urmilaben
- R-Kraine Inc. is considering acquiring an existing project (with financial backing from the government). The project is expected to have another 8 (full) years of economic life. The project's year-end cash flows are as follows: Years 1-4: $2m each year Years 5-8: $500,000, $2m, $500,000 and $2m (respectively) Suppose the relevant discount rate for the project could be estimated from the following cash flows of an 8-year (fixed) coupon bond issued by R-Kraine a couple of months ago: Current market price (per unit): $584,608.5676 Face value (per unit): $800,000 Yearly coupon payments: $72,000 Calculate the YTM of the bond. [Hint: State clearly the relevant numerical formula and then crunch out the answer using Excel program or financial calculator. The answer can also be solved with a scientific calculator using a manual trial-and-error approach as the YTM was set to be an integer.] a)Oil Gas Limited is considering investing in two projects; Project 1 and Project 2. Information relating to both is provided below:Details Project 1 Project 2 $ $Initial Cost 150 000 150 000Cash Flow: Year 1 60 000 54 000 Year 2 50 000 44 000 Year 3 45 000 39 000 Year 4 125 000 49 000 Year 5 0 104 000Project 1 will be sold for a scrap value of $30 000 at the end of year 4 and Project 2 for a scrap value of $24 000 at the end of year 5. Oil Gas Limited’s capital structure is made up of 50% debt and 50% ordinary shares. The cost of debt is 10% and cost of equity 23%. The current tax rate is 30%. A. Calculate the net present value of both projects using WACC and indicate which project should be chosen. B.…Question: Elsies Limited is considering the purchase of a machine to manufacture some of the spare parts for the catering equipment during 2025. The company desires a minimum required rate of return of 12%. The machine will cost R2 000 000 plus R400 000 for installation and is predicted to have a useful life of five years. A salvage value of R100 000 is estimated. The machine is expected to generate cash inflows of R800 000 per year but will require the employment of two new machine operators at R100 000 per year for each operator, and it will require maintenance and repairs averaging R40 000 per year. Depreciation will be calculated using the straight-line method. Benefit Cost Ratio (expressed to two decimal places).
- Give typing answer with explanation and conclusion Caspian Sea Drinks is considering the production of a diet drink. The expansion of the plant and the purchase of the equipment necessary to produce the diet drink will cost $25.00 million. The plant and equipment will be depreciated over 10 years to a book value of $3.00 million, and sold for that amount in year 10. Net working capital will increase by $1.35 million at the beginning of the project and will be recovered at the end. The new diet drink will produce revenues of $9.15 million per year and cost $1.93 million per year over the 10-year life of the project. Marketing estimates 10.00% of the buyers of the diet drink will be people who will switch from the regular drink. The marginal tax rate is 32.00%. The WACC is 13.00%. Find the NPV (net present value).Melton Manufacturing Ltd is considering two alternative investment projects. The first project calls for amajor renovation of the company’s manufacturing facility. The second involves replacing just a fewobsolete pieces of equipment in the facility. The company will choose one project or the other this year,but it will not do both. The cash flows associated with each project appear below and the firm discountsproject cash flows at 10%.Year Renovate Replace0 –$4,000,000 –$1,300,0001 2,000,000 1,000,0002 2,000,000 700,0003 2,000,000 300,0004 2,000,000 150,0005 2,000,000 150,000 Chart the NPV profiles of these projects. Label the intersection points on the x- and y-axes and thecrossover point.ICB Berhad is looking for projects in the Klang Development Region for additional investments. Two mutually exclusive projects are brought to the attention of the management and the detailed information furnished below: Project A 200,000 Project B 180,000 Cost of equipment (RM) Estimated life 6 years 5 years Scrap value at life end (RM) 20,000 NIL Additional information: Revenue for Project A in the first year is estimated to be RM80,000 and is expected to increase by 10% each year. 1. 2. The annual fixed cost for project A is RM10,500 and project B is RM9,000. 3. Variable costs for each year are expected to be 20% of revenue. 4. The equipment is eligible for 20% initial and 10% annual capital allowance. The current tax rate is 30% and the tax is payable at the end of the following year. The company's cost of capital is 11%. 5. The management accountant calculated the Net Present Value for project B as RM58,501. 6. The present value and Present Value Annuity of RM1 discounted at 11%…
- Two mutually exclusive alternatives are being considered for the environmental protection equipment at a petroleum refinery. One of thesealternatives must be selected. The estimated cash flows for each alternative are as shown. Solve, a. Which environmental protection equipmentalternative should be selected? The firm’s MARR is 20% per year. Assume the equipment will be needed indefinitely. b. Assume the study period is shortened to five years. The market value of Alternative B after five years isestimated to be $15,000. Which alternative would you recommend?The management of Advanced Alternative Power Inc. is considering two capital investment projects. The estimated net cash flows from each project are as follows: Biofuel Equipment $300,000 300,000 3 300,000 4 300,000 The wind turbines require an investment of $887,600, while the biofuel equipment requires an investment of $911,100. No residual value is expected from either project. Present Value of an Annuity of $1 at Compound Interest Year 6% 10% 12% 15% 0.909 1.736 2.487 3.170 3.791 4.355 4.868 Year 1 2 1 2 3 4 5 6 7 8 9 10 0.943 1.833 2.673 3.465 4.212 4.917 5.582 6.210 6.802 7.360 Wind Turbines $280,000 280,000 280,000 280,000 5.335 5.759 6.145 0.893 1.690 2.402 3.037 3.605 4.111 4.564 4.968 5.328 5.650 0.870 1.626 2.283 2.855 3.353 3.785 4.160 4.487 4.772 5.019 20% 0.833 1.528 2.106 2.589 2.991 3.326 3.605 3.837 4.031 4.192Melton Manufacturing Ltd is considering two alternative investment projects. The first project calls for amajor renovation of the company’s manufacturing facility. The second involves replacing just a fewobsolete pieces of equipment in the facility. The company will choose one project or the other this year,but it will not do both. The cash flows associated with each project appear below and the firm discountsproject cash flows at 10%.Year Renovate Replace0 –$4,000,000 –$1,300,0001 2,000,000 1,000,0002 2,000,000 700,0003 2,000,000 300,0004 2,000,000 150,0005 2,000,000 150,000 Based on this NPV profile analysis and assuming the WACC is 20%, which project is recommended?Why?