Net Present Value Carsen Sorensen, controller of Thayn Company, just received the following data associated with production of a new product: Expected annual revenues: $740,000 Projected product life cycle: five years Equipment: $810,000 with a salvage value of $100,000 after five years Expected increase in working capital: $110,000 (recoverable at the end of five years) Annual cash operating expenses: estimated at $444,000 Required rate of return: 8 percent The present value tables provided in Exhibit 19B.1 and Exhibit 19B.2 must be used to solve the following problems. Required: 1. Estimate the annual cash flows for the new product. Enter cash outflows as negative amounts and cash inflows as positive amounts. Year Cash Flow 0 $fill in the blank 1–4 $fill in the blank 5 $fill in the blank 2. Using the estimated annual cash flows, calculate the NPV. $fill in the blank 3. What if revenues were overestimated by $148,000? Redo the NPV analysis, correcting for this error. Assume the operating expenses remain the same. Enter cash outflows as negative amounts and cash inflows as positive amounts. Year Cash Flow Present Value 0 $fill in the blank $fill in the blank 1–4 fill in the blank fill in the blank 5 fill in the blank fill in the blank Net present value $fill in the blank
Net Present Value Carsen Sorensen, controller of Thayn Company, just received the following data associated with production of a new product: Expected annual revenues: $740,000 Projected product life cycle: five years Equipment: $810,000 with a salvage value of $100,000 after five years Expected increase in working capital: $110,000 (recoverable at the end of five years) Annual cash operating expenses: estimated at $444,000 Required rate of return: 8 percent The present value tables provided in Exhibit 19B.1 and Exhibit 19B.2 must be used to solve the following problems. Required: 1. Estimate the annual cash flows for the new product. Enter cash outflows as negative amounts and cash inflows as positive amounts. Year Cash Flow 0 $fill in the blank 1–4 $fill in the blank 5 $fill in the blank 2. Using the estimated annual cash flows, calculate the NPV. $fill in the blank 3. What if revenues were overestimated by $148,000? Redo the NPV analysis, correcting for this error. Assume the operating expenses remain the same. Enter cash outflows as negative amounts and cash inflows as positive amounts. Year Cash Flow Present Value 0 $fill in the blank $fill in the blank 1–4 fill in the blank fill in the blank 5 fill in the blank fill in the blank Net present value $fill in the blank
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
Related questions
Question
eBook
Carsen Sorensen, controller of Thayn Company, just received the following data associated with production of a new product:
- Expected annual revenues: $740,000
- Projected product life cycle: five years
- Equipment: $810,000 with a salvage value of $100,000 after five years
- Expected increase in working capital: $110,000 (recoverable at the end of five years)
- Annual cash operating expenses: estimated at $444,000
- Required
rate of return : 8 percent
The present value tables provided in Exhibit 19B.1 and Exhibit 19B.2 must be used to solve the following problems.
Required:
1. Estimate the annual cash flows for the new product. Enter
| Year | Cash Flow |
| 0 | $fill in the blank |
| 1–4 | $fill in the blank |
| 5 | $fill in the blank |
2. Using the estimated annual cash flows, calculate the NPV.
$fill in the blank
3. What if revenues were overestimated by $148,000? Redo the NPV analysis, correcting for this error. Assume the operating expenses remain the same. Enter cash outflows as negative amounts and cash inflows as positive amounts.
| Year | Cash Flow | Present Value |
| 0 | $fill in the blank | $fill in the blank |
| 1–4 | fill in the blank | fill in the blank |
| 5 | fill in the blank | fill in the blank |
| Net present value | $fill in the blank |
Expert Solution
This question has been solved!
Explore an expertly crafted, step-by-step solution for a thorough understanding of key concepts.
This is a popular solution!
Trending now
This is a popular solution!
Step by step
Solved in 3 steps with 8 images
Knowledge Booster
Learn more about
Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, finance and related others by exploring similar questions and additional content below.Recommended textbooks for you
Essentials Of Investments
Finance
ISBN:
9781260013924
Author:
Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:
Mcgraw-hill Education,
Essentials Of Investments
Finance
ISBN:
9781260013924
Author:
Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:
Mcgraw-hill Education,
Foundations Of Finance
Finance
ISBN:
9780134897264
Author:
KEOWN, Arthur J., Martin, John D., PETTY, J. William
Publisher:
Pearson,
Fundamentals of Financial Management (MindTap Cou…
Finance
ISBN:
9781337395250
Author:
Eugene F. Brigham, Joel F. Houston
Publisher:
Cengage Learning
Corporate Finance (The Mcgraw-hill/Irwin Series i…
Finance
ISBN:
9780077861759
Author:
Stephen A. Ross Franco Modigliani Professor of Financial Economics Professor, Randolph W Westerfield Robert R. Dockson Deans Chair in Bus. Admin., Jeffrey Jaffe, Bradford D Jordan Professor
Publisher:
McGraw-Hill Education