Jefferson Products Inc. is considering purchasing a new automatic press brake, which costs $320,000 including installation and shipping. The machine is expected to generate net cash inflows of $90,000 per year for 12 years. At the end of 12 years, the book value of the machine will be $0, and it is anticipated that the machine will be sold for $110,000. If the press brake project is undertaken, Jefferson will have to increase its net working capital by $100,000. When the project is terminated in 12 years, there will no longer be a need for this incremental working capital, and it can be liquidated and made available to Jefferson for other uses. Jefferson requires a 9 percent annual return on this type of project and its marginal tax rate is 40 percent. Use Table II and Table IV to answer the questions. Calculate the press brake's net present value. Round your answer to the nearest dollar. $ Is the project acceptable? The project is . What is the meaning of the computed net present value figure? Round your answer to the nearest dollar. The value of the firm, and therefore the shareholders’ wealth, is by $ as a result of undertaking this project. What is the project’s internal rate of return? Round your answer to two decimal places. % For the press brake project, at what annual rates of return do the net present value and internal rate of return methods assume that the net cash inflows are being reinvested? Round your answers to two decimal places. The net present value calculation assumes the net cash flows are reinvested at %. The internal rate of return calculation assumes the net cash flows are reinvested at %.
Net Present Value
Net present value is the most important concept of finance. It is used to evaluate the investment and financing decisions that involve cash flows occurring over multiple periods. The difference between the present value of cash inflow and cash outflow is termed as net present value (NPV). It is used for capital budgeting and investment planning. It is also used to compare similar investment alternatives.
Investment Decision
The term investment refers to allocating money with the intention of getting positive returns in the future period. For example, an asset would be acquired with the motive of generating income by selling the asset when there is a price increase.
Factors That Complicate Capital Investment Analysis
Capital investment analysis is a way of the budgeting process that companies and the government use to evaluate the profitability of the investment that has been done for the long term. This can include the evaluation of fixed assets such as machinery, equipment, etc.
Capital Budgeting
Capital budgeting is a decision-making process whereby long-term investments is evaluated and selected based on whether such investment is worth pursuing in future or not. It plays an important role in financial decision-making as it impacts the profitability of the business in the long term. The benefits of capital budgeting may be in the form of increased revenue or reduction in cost. The capital budgeting decisions include replacing or rebuilding of the fixed assets, addition of an asset. These long-term investment decisions involve a large number of funds and are irreversible because the market for the second-hand asset may be difficult to find and will have an effect over long-time spam. A right decision can yield favorable returns on the other hand a wrong decision may have an effect on the sustainability of the firm. Capital budgeting helps businesses to understand risks that are involved in undertaking capital investment. It also enables them to choose the option which generates the best return by applying the various capital budgeting techniques.
Jefferson Products Inc. is considering purchasing a new automatic press brake, which costs $320,000 including installation and shipping. The machine is expected to generate net
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Calculate the press brake's
net present value . Round your answer to the nearest dollar.
$ - Is the project acceptable?
The project is .
- What is the meaning of the computed net present value figure? Round your answer to the nearest dollar.
The value of the firm, and therefore the shareholders’ wealth, is by $ as a result of undertaking this project.
-
What is the project’s
internal rate of return ? Round your answer to two decimal places.
% - For the press brake project, at what annual
rates of return do the net present value and internal rate of return methods assume that the net cash inflows are being reinvested? Round your answers to two decimal places.
The net present value calculation assumes the net cash flows are reinvested at %. The internal rate of return calculation assumes the net cash flows are reinvested at %.
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What is the project’s
internal rate of return ? Round your answer to two decimal places.
% - For the press brake project, at what annual
rates of return do thenet present value and internal rate of return methods assume that the netcash inflows are being reinvested? Round your answers to two decimal places.
The net present value calculation assumes the net cash flows are reinvested at %. The internal rate of return calculation assumes the net cash flows are reinvested at %.
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