Healthy. Ltd is considering a proposal to produce organic food. It will involve an initial investment of $80,000. In each of years 1 to 10, the project is estimated to produce sales of $60,000 with sales volume of 5,000 and to incur total variable costs of $25,000 and fixed costs of $15,000. The cost of capital is 10%. Calculate the NPV of this project What is the break-even level of sale price per unit?
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Healthy. Ltd is considering a proposal to produce organic food. It will involve an initial investment of $80,000. In each of years 1 to 10, the project is estimated to produce sales of $60,000 with sales volume of 5,000 and to incur total variable costs of $25,000 and fixed costs of $15,000. The cost of capital is 10%.
Calculate the NPV of this project
What is the break-even level of sale price per unit?
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- Gina Ripley, president of Dearing Company, is considering the purchase of a computer-aided manufacturing system. The annual net cash benefits and savings associated with the system are described as follows: The system will cost 9,000,000 and last 10 years. The companys cost of capital is 12 percent. Required: 1. Calculate the payback period for the system. Assume that the company has a policy of only accepting projects with a payback of five years or less. Would the system be acquired? 2. Calculate the NPV and IRR for the project. Should the system be purchasedeven if it does not meet the payback criterion? 3. The project manager reviewed the projected cash flows and pointed out that two items had been missed. First, the system would have a salvage value, net of any tax effects, of 1,000,000 at the end of 10 years. Second, the increased quality and delivery performance would allow the company to increase its market share by 20 percent. This would produce an additional annual net benefit of 300,000. Recalculate the payback period, NPV, and IRR given this new information. (For the IRR computation, initially ignore salvage value.) Does the decision change? Suppose that the salvage value is only half what is projected. Does this make a difference in the outcome? Does salvage value have any real bearing on the companys decision?Falkland, Inc., is considering the purchase of a patent that has a cost of $50,000 and an estimated revenue producing life of 4 years. Falkland has a cost of capital of 8%. The patent is expected to generate the following amounts of annual income and cash flows: A. What is the NPV of the investment? B. What happens if the required rate of return increases?FastTrack Bikes Inc. is thinking of developing a new composite road bike. Development will take six years and the cost is $184,000 per year. Once in production, the bike is expected to make $276,000 per year for 10 years. Assume the cost of capital is 10%. a. Calculate the NPV of this investment opportunity. Should the company make the investment? b. Calculate the IRR and use it to determine the maximum deviation allowable in the cost of capital estimate to leave the decision unchanged (Hint: Use Excel to calculate the IRR.) c. Calculate the NPV of this investment opportunity assuming the cost of capital is 13%. Should the company make the investment given this new assumption? Note: Assume that all cash flows occur at the end of the appropriate year and that the the inflows do not start until year 7. a. Calculate the NPV of this investment opportunity. Should the company make the investment? The present value of the costs is $ (Round to the nearest dollar.)
- FastTrack Bikes, Inc. is thinking of developing a new composite road bike. Development will take six years and the cost is $176,000 per year. Once in production, the bike is expected to make $281,600 per year for 10 years. Assume the cost of capital is 10%. Calculate the NPV of this investment opportunity, assuming all cash flows occur at the end of each year. Should the company make the investment? The present value of the costs is how much(Round to the nearestdollar.) By how much must the cost of capital estimate deviate to change the decision? (Hint: Use Excel to calculate the IRR.) What is the NPV of the investment if the cost of capital is 15%? (Round to two decimal places) Note: Assume that all cash flows occur at the end of the appropriate year and that the inflows do not start until year 7.A community project costs GH¢800, 000. You reckon that it will produce an inflow afteroperating costs of GH¢170, 000 a year for 10 years. If the opportunity cost of capital is14 percent, what is the net present value of the factory? What is its profitability index?Vencap Enterprises is evaluating an investment opportunity that can be purchased for $55,000. Further product development will require contributions of $30,000 in Year 1 and $10,000 in Year 2. Then returns of $20,000, $60,000, and $40,000 are expected in the three following years. Cost of capital is 6%. What price should Vencap offer for the investment opportunity if it requires a 9% return on investment?
- A company is considering a project which would involve purchasing amachine for $20,000 which will have no value at the end of the project.It will be used to produce a product which will have sales of 600 unitsper year for 4 years. The sales price per unit will be $50, the variablecosts per unit $20 and the incremental fixed costs of the project will be$10,000 per annum. These are all expressed in real terms and will besubject to inflation.Sales will inflate at 5% per annum, variable costs at 6% per annumand fixed costs at 7% per annum.The cost of capital is 15%Required:-Calculate NPV of the projectA company that manufactures rigid shaft couplings has $600,000 to invest. The company is considering three different projects that will yield the following rates of return:Project X iX = 24%Project Y iY = 18%Project Z iZ = 30%The initial investment required for each project is $100,000, $300,000, and $200,000, respectively. If the company’s MARR is 15% per year and thecompany invests in all three projects, what overall rate of return will the company make?A particular service can be purchased for $100 per unit. The same service can be provided by equipment that costs $400,000 today and has a salvage value of $250,000 after 10 years. Annual operating expenses will be $500 per year plus $2.00 per unit.a) If the estimates are correct, what will be the internal rate of return on the incremental investment if 400 units/year are produced.b) If the Attractive Minimum Rate of Return is 15% per year, what is the best alternative?
- K Innovation Company is thinking about marketing a new software product. Upfront costs to market and develop the product are $4.98 million. The product is expected to generate profits of $1.09 million per year for 10 years. The company will have to provide product support expected to cost $98,000 per year in perpetuity. Assume all profits and expenses occur at the end of the year. a. What is the NPV of this investment if the cost of capital is 5.6%? Should the firm undertake the project? Repeat the analysis for discount rates of 1.6% and 14.5%, respectively. b. What is the IRR of this investment opportunity? c. What does the IRR rule indicate about this investment? a. What is the NPV of this investment if the cost of capital is 5.6%? Should the firm undertake the project? Repeat the analysis for discount rates of 1.6% and 14.5%, respectively. If the cost of capital is 5.6%, the NPV will be $ (Round to the nearest dollar.) Should the firm undertake the project? (Select the best choice…The internal rate of return (IRR) is the discount rate that results in a net present value (NPV) of zero. True FalseA particular service can be purchased for $130 per unit. The same service can be provided by equipment that costs $400,000 today and has a salvage value of $250,000 after 10 years. Annual operating expenses will be $5000 per year plus $20 per unit.a) If the estimates are correct, what will be the internal rate of return on the incremental investment if 400 units/year are produced.b) If the Attractive Minimum Rate of Return is 15% per year, what is the best alternative? Please answer in detail