Task 1: Project AppraisalJackets Ltd is considering expanding its highly successful denim jackets business. The initialinvestment costs and net annual cash flows for two projects considered by Jackets Ltdmanufactures denim jackets are shown in the table below;YearAB(100,000)20,00025,00035,00050,000(150,000)100,00040,50012320,00010,0004The company's expected return on capital is 8%. For both projects, calculate the following;1. Calculate the ARR and discounted payback period of these two projects.marks]2. Calculate the NPV of these two projects.3. Calculate Profitability index for these two projects.4. Considering the above results, explain critically which project do you choose?

Capital budgeting: The process through which investors assess the worth of a possible investment…

Jackets Ltd is considering expanding its highly successful denim jackets business. The initial investment costs and net annual cash flows for two projects considered by Jackets Ltd manufactures denim jackets are shown in the table below; Year A B (100,000) 20,000 25,000 35,000 50,000 (150,000) 100,000 40,500 20,000 10,000 1 2 3 The company's expected return on capital is 8%. For both projects, calculate the following; 1. Calculate the ARR and discounted payback period of these two projects. marks] 2. Calculate the NPV of these two projects. 3. Calculate Profitability index for these two projects. 4. Considering the above results, explain critically which project do you choose?

Jackets Ltd is considering expanding its highly successful denim jackets business. The initial investment costs and net annual cash flows for two projects considered by Jackets Ltd manufactures denim jackets are shown in the table below; Year A B (100,000) 20,000 25,000 35,000 50,000 (150,000) 100,000 40,500 20,000 10,000 1 2 3 The company's expected return on capital is 8%. For both projects, calculate the following; 1. Calculate the ARR and discounted payback period of these two projects. marks] 2. Calculate the NPV of these two projects. 3. Calculate Profitability index for these two projects. 4. Considering the above results, explain critically which project do you choose?

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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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…
Charlie Charlie Ltd is considering investing in equipment to make a new product. The machine would cost £500,000 and would be sold after 6 years for an estimated £200,000. The production would generate net positive cashflows as follows: Year Net operating cashflow (£) 1 80,000 2 80,000 3 90,000 4 100,000 5 110,000 6 120,000 The company has a cost of finance of approximately 10% pa. Calculate: The Payback Period (assume the operating cashflows are spread evenly over each year) The Accounting Rate of Return based on average investment The NPV (assume here that operating cashflows occur at the end of each year) The IRR (try 15% for the other rate)
Salsa Company is considering an investment in technology to improve its operations. The investment costs $241,000 and will yield the following net cash flows. Management requires a 10% return on investments. (PV of $1, FV of $1, PVA of $1, and FVA of $1) Note: Use appropriate factor(s) from the tables provided. Year Net cash Flow 1 $ 48, 200 2 53,900 3 76, 400 4 95,500 5 126,500 Required: Determine the payback period for this investment. Determine the break - even time for this investment. Determine the net present value for this investment. Should management invest in this project based on net present value?
Keane & Co plc is considering two possible investments. The company requires an Accounting Rate of Return of 12% and payback within 2 years. It has a cost of capital of 12%. Forecast sales and production units Year 1 Year 2 Year 3 Year 4 Contribution per unit Fixed cost per year Initial investment Residual (scrap) value Accounting Rate of Return Internal Rate Return Discount factors at 12% are: Year 1 Year 2 Year 3 Year 4 Year 5 0.893 0.797 0.712 0.636 0.567 Project J 60,000 110,000 80,000 50,000 £40 £800,000 £7,600,000 £300,000 9.5% 8% Project K 30,000 24,000 20,000 12,000 £120 £700,000 £5,500,000 £150,000 19% 18%
The following table presents sales forecasts for Golden Gelt Giftware. The unit price is $40. The unit cost of the giftware is $25. Year 1 2 3 4 Thereafter Unit Sales 22,000 30,000 14,000 5,000 8 It is expected that net working capital will amount to 20% of sales in the following year. For example, the store will need an initial (Year 0) Investment in working capital of 0.20 x 22,000 × $40 = $176,000. Plant and equipment necessary to establish the giftware business will require an additional Investment of $200,000. This Investment will be depreciated straight-line over 3 years. The firm's tax rate is 30%. The discount rate is 20%. a. What is the net present value of the project? Note: Do not round Intermediate calculations. Round your answer to the nearest whole dollar amount. b. By how much does NPV Increase if the firm takes Immediate 100% bonus depreciation? a. Net present value b. Increase in NPV
Aster Company is considering an investment in technology to improve its operations. The investment will require an initial outlay of $800,000 and yield the following expected cash flows. Management requires investments to have a payback period of two years, and it requires a 10% return on its investments.
I am opening a new factory. The factory will cost $10 million up front. I expect a cash flow of $6 million next year. The cash flows will grow at a rate of 1%. The NPV is $111,200,000. 1. draw the NPV vs r graph and locate the IRR 2. based on the graph, would I accept or reject the project if the cost of capital is between 3% and 5%
Panthers plc is considering a project which will generate cash flows of £5,000 each year from years 3 to 7. The company has a cost of capital of 14%. What is the total present value of the cash flows? a) £21,440 b) £13,210 c) £17,090 d) £17,165

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