(Net present value calculation) Big Steve's, makers of swizzle sticks, is considering the purchase of a new plastic stamping machine. This investment requires an initial outlay of $90,000 and will generate net cash inflows of $17,000 per year for 9 years. a. What is the project's NPV using a discount rate of 9 percent? Should the project be accepted? Why or why not? b. What is the project's NPV using a discount rate of 14 percent? Should the project be accepted? Why or why not? c. What is this project's internal rate of return? Should the project be accepted? Why or why not? a. If the discount rate is 9 percent, then the project's NPV is $ (Round to the nearest dollar.)

(Net present value calculation) Big Steve's, makers of swizzle sticks, is considering the purchase of a new plastic stamping machine. This investment requires an initial outlay of $90,000 and will generate net cash inflows of $17,000 per year for 9 years. a. What is the project's NPV using a discount rate of 9 percent? Should the project be accepted? Why or why not? b. What is the project's NPV using a discount rate of 14 percent? Should the project be accepted? Why or why not? c. What is this project's internal rate of return? Should the project be accepted? Why or why not? a. If the discount rate is 9 percent, then the project's NPV is $ (Round to the nearest dollar.)

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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1. Comparing all methods. Given the following after-tax cash flow on a new toy for Tyler's Toys, find the project's payback period, NPV, and IRR. The appropriate discount rate for the project is 14%. If the cutoff period is 6 years for major projects, determine whether management will accept or reject the project under the three different decision models. (Click on the following icon in order to copy its contents into a spreadsheet.) Initial cash outflow: $11,700,000 Years one through four cash inflow: $2,925,000 each year Year five cash outflow: $1,170,000 Years six through eight cash inflow: $503,000 each year What is the payback period for the new toy at Tyler's Toys? years (Round to two decimal places.) Under the payback period, this project would be (1) What is the NPV for the new toy at Tyler's Toys? $ (Round to the nearest cent.) Under the NPV rule, this project would be (2) What is the IRR for the new toy at Tyler's Toys? % (Round to two decimal places.) Under the IRR rule,…
What is the net present value of the flier project, which is a 3-year project where Dispersion would spread fliers all over Fairfax? The project would involve an initial investment in equipment of $232,000.00 today. To finance the project, Dispersion would borrow $232,000.00. The firm would receive $232,000.00 from the bank today and would pay the bank $294,695.40 in 3 years (consisting of an interest payment of $62,695.40 and a principal payment of $232,000.00). Cash flows from capital spending would be $0.00 in year 1, $0.00 in year 2, and $30,500.00 in year 3. Operating cash flows are expected to be $144,900.00 in year 1, $99,400.00 in year 2, and -$28,200.00 in year 3. The cash flow effects from the change in net working capital are expected to be -$8,310.00 at time 0; -$21,700.00 in year 1; $12,100.00 in year 2, and $16,900.00 in year 3. The tax rate is 35.00 percent. The cost of capital is 7.45 percent and the interest rate on the loan would be 8.03 percent. -$13,600.79 (plus or…
Master Lock is evaluating whether to replace an older laser engraving machine to inscribe logos with a new machine. – The initial investment to acquire the machine is $380,000. – The machine has an expected useful life of 5 years. – The new machine would generates annual cost savings of $100,0000 (cash flows) one each of the five years. – The discount rate (or required rate of return) is 8%. • What’s the NPV (assume no taxes or inflation)?
← (Net present value calculation) Big Steve's, makers of swizzle sticks, is considering the purchase of a new plastic stamping machine This investment requires an initial outlay of $105,000 and will generate net cash inflows of $17,000 per year for 9 years a. What is the project's NPV using a discount rate of 11 percent? Should the project be accepted? Why or why not? b. What is the project's NPV using a discount rate of 16 percent? Should the project be accepted? Why or why not? c. What is this project's internal rate of return? Should the project be accepted? Why or why not?
What information does the payback period provide? Suppose you are evaluating a project with the expected future cash inflows shown in the following table. Your boss has asked you to calculate the project's net present value (NPV). You don't know the project's initial cost, but you do know the project's regular, or conventional, payback period is 2.50 years. If the project's weighted average cost of capital (WACC) is 9%, the project's NPV (rounded to the nearest dollar) is: $355,048 $287,420 $405,769 $338,141 Which of the following statements indicate a disadvantage of using the regular payback period (not the discounted payback period) for capital budgeting decisions? Check all that apply. The payback period does not take the time value of money into account. The payback period is calculated using net income instead of cash flows. The payback period does not take the project's entire life into account.
What information does the payback period provide? Suppose you are evaluating a project with the expected future cash inflows shown in the following table. Your boss has asked you to calculate the project’s net present value (NPV). You don’t know the project’s initial cost, but you do know the project’s regular, or conventional, payback period is 2.50 years. Year Cash Flow Year 1 $350,000 Year 2 $500,000 Year 3 $450,000 Year 4 $425,000 If the project’s weighted average cost of capital (WACC) is 8%, the project’s NPV (rounded to the nearest dollar) is: $312,620 $295,253 $277,885 $347,356 Which of the following statements indicate a disadvantage of using the regular payback period (not the discounted payback period) for capital budgeting decisions? Check all that apply. The payback period is calculated using net income instead of cash flows. The payback period does not take the project’s entire life into account.…
Your firm is considering a project that will cost $4.719 million up front, generate cash flows of $3.55 million per year for 3 years, and then have a cleanup and shutdown cost of $5.96 million in the fourth year. a. How many IRRS does this project have? b. Create an NPV profile for this project (plot the NPV as a function of the discount rate-see the appendix). (NOTE: students will solve this question part using Excel only. A student response is not included in MyFinanceLab). c. Given a cost of capital of 9.9% should this project be accepted? a. The project has IRRS. (Select from the drop-down menu.) 2 3 4
(Net present value calculation) Dowling Sportswear is considering building a new factory to produce aluminum baseball bats. This project would require an initial cash outlay of $5,500,000 and would generate annual net cash inflows of $1,100,000 per year for 6 years. Calculate the project's NPV using a discount rate of 8 percent. If the discount rate is 8 percent, then the project's NPV is $. (Round to the nearest dollar.)
(Net present value calculation) Big Steve's, makers of swizzle sticks, is considering the purchase of a new plastic stamping machine. This investment requires an initial outlay of $105,000 and will generate net cash inflows of $20,000 per year for 8 years. a. What is the project's NPV using a discount rate of 9 percent? Should the project be accepted? Why or why not? b. What is the project's NPV using a discount rate of 16 percent? Should the project be accepted? Why or why not? c. What is this project's internal rate of return? Should the project be accepted? Why or why not? **** a. If the discount rate is 9 percent, then the project's NPV is $. (Round to the nearest dollar.)
1. Solve the following three independent scenarios: A. If a copy center is considering the purchase of a new copy machine with an initial investment cost of $150,000 and the center expects an annual net cash flow of $20,000 per year, what is the payback period? Payback period = ? years. Round your Payback Period (PB) answer to one decimal place (i.e. 12.3). B. If a garden center is considering the purchase of a new tractor with an initial investment cost of $120,000, and the center expects a return of $30,000 in year one, $20,000 in years two and three, $15,000 in years four and five, and $10,000 in year six and beyond, what is the payback period? Payback period = ? years. Round your Payback Period (PB) answer to one decimal place (i.e. 12.3). C. A mini-mart needs a new freezer and the initial investment will cost $300,000. Incremental revenues, including cost savings, are $200,000, and incremental expenses, including depreciation, are $125,000. There is no salvage value. What is…
Carla Vista Company is considering a long-term investment project called ZIP. ZIP will require an investment of $118,665. It will have a useful life of 4 years and no salvage value. Annual cash inflows would increase by $81,000, and annual cash outflows would increase by $40,500. The company's required rate of return is 12%. Click here to view the factor table. Calculate the internal rate of return on this project. (Round answers to whole number (e.g., 15%).) Internal rate of return on this project is between Determine whether this project should be accepted? % and %. The project should be accepted.
UPS is considering the purchase of a electric truck that would cost $150,000 and would last for 5 years. At the end of 5 years, the truck would have a salvage value of $20,000. By reducing labor and other operating costs, the machine would provide annual cost savings of $45,000. The company requires a minimum return of 19% on all investment projects. The net present value of the proposed project is closest to (Ignore income taxes.): PV factor of $1 annuity for 5 years at 19% is 3.058 and PV of $1 over 5 years is 0.419 A. $85,000 B. -$12,390 O C. -$4,010 O D.$145,990

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