Answered: Mendez Company is considering a capital… | bartleby

FINANCIAL ACCOUNTING

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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Question

Mendez Company is considering a capital project that costs $35,000. The project will deliver the following cash flows:
Ac
raw
Year 1
$14,000
Year 2
$12,000
Year 3
Year 4
Year 5
$10,000
$12,000
$10,000
Using the incremental approach, the payback period for the investment is:
Multiple Choice
O
1.38 years.
2.9 years.
5 years.
2 years.
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Consider a project in which the initial after-tax investment is $80,000. The predicted after-tax cash flow for the following 4 years are: Year 1: $25,000 Year 2: $25,000 Year 3: $35,000 Year 4: $45,000 Year 5: $55,000 What is the IRR of this project? Group of answer choices 30.29% 29.32% 24.54% 27.98% 24.14%
Consider a new business line that your company will start: Costs to launch the project: $6,000,000 Life of the project: 5 years Cash inflows from the project: Year One $ 400,000 Year Two $1,700,000 Year Three $2,650,000 Year Four $3,400,000 Year Five $ 950,000 Project Beta 0.83 Risk-Free Rate 1.20% Market Risk Premium 5.55% Default Risk Premium…
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Use the following table of free cash flows for an investment to answer questions 12-15: 2 5,000 3 3,000 Free Cash Flow -8,000 1,000 12. What is the payback period for this project? If the required payback period is 2 years, would you invest in this project based on the payback period? 13. If the discount rate is 10%, what is the discounted payback period for this project? If the required discounted payback period is 2 years, would you invest in this project based on the payback period? 14. What is the internal rate of return on this project? If the discount rate (or WACC) is 10%, would you invest in this project? 15. With a discount rate (or WACC) of 10%, what is the net present value (NPV) of this project and would you accept or reject the project?
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ABC Company Limited looking to invest in one of the proposed projects. The cost of that project is $50,000 and cash inflows and outflows are projected for 5 years, as shown in the below table. Calculate the Internal Rate of Return (IRR) of the Project using the given interest rate and the rate of 8%. The interest rate is 5%.
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Cute Camel Woodcraft Company is analyzing a project that requires an initial investment of $400,000. The project's expected cash flows are: Year Year 1 Year 2 Year 3 Year 4 Cute Camel Woodcraft Company's WACC is 8%, and the project has the same risk as the firm's average project. Calculate this project's modified internal rate of return (MIRR): O 27.56% O26.25% 28.88% Cash Flow $325,000 -175,000 475,000 475,000 O 23.63%
Pendleton Products has a project requiring an initial cash investment of $3,400. The project is expected to return $1,100 each period for the next 5 periods, and it has a discount rate of 6%.1. Determine how long it will take, if at all, for the project to have a positive payback.Present value formula:
Consider the following cash flow profile and assume MARR is 10%/year. EOY NCF Part a Determine the ERR for this project. 0 1 2 3 4 5 6 % -$50 $32 $32 $32 $32 $32 $32 Carry all interim calculations to 5 decimal places and then round your final answer to 1 decimal place. The tolerance is ±0.2.
FastTrack Bikes, Inc. is thinking of developing a new composite road bike. Development will take six years and the cost is $200,000 per year. Once in production, the bike is expected to make $300,000 per year for 10 years. Assume the cost of capital is 10%. a. Calculate the NPV of this investment opportunity, assuming all cash flows occur at the end of each year. Should the company make the investment? b. By how much must the cost of capital estimate deviate to change the decision? (Hint: Use Excel to calculate the IRR.) c. What is the NPV of the investment if the cost of capital is 14%? Note: Assume that all cash flows occur at the end of the appropriate year and that the inflows do not start until year 7.

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