41. BP Company is considering two capital investment proposals.Estimates regarding each project are provided below: Project LS1Project RS1Initial investmentP2000,000P300,000Annual net income10,00021,000Net annual cash inflow50,00071,000Estimated useful life5 years6 yearsSalvage value-0--0- The company requires a 10% rate of return on all new investments.Present Value of an Annuity of 1Period9%10%11%12%53.8903.7913.6963.60564.4864.3554.2314.111 The net present value for Project RS1 is?

Answered: net present value for

Business

Accounting

net present value for

Principles of Accounting Volume 2

19th Edition

ISBN:9781947172609

Author:OpenStax

Publisher:OpenStax

Chapter11: Capital Budgeting Decisions

Section: Chapter Questions

Problem 19EA: Redbird Company is considering a project with an initial investment of $265,000 in new equipment...

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Fenton, Inc., has established a new strategic plan that calls for new capital investment. The company has a 9.8% required rate of return and an 8.3% cost of capital. Fenton currently has a return of 10% on its other investments. The proposed new investments have equal annual cash inflows expected. Management used a screening procedure of calculating a payback period for potential investments and annual cash flows, and the IRR for the 7 possible investments are displayed in image. Each investment has a 6-year expected useful life and no salvage value. A. Identify which project(s) is/are unacceptable and briefly state the conceptual justification as to why each of your choices is unacceptable. B. Assume Fenton has $330,000 available to spend. Which remaining projects should Fenton invest in and in what order? C. If Fenton was not limited to a spending amount, should they invest in all of the projects given the company is evaluated using return on investment?
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40. BP Company is considering two capital investment proposals. Estimates regarding each project are provided below: Project LS1 Project RS1 Initial investment P2000,000 P300,000 Annual net income 10,000 21,000 Net annual cash inflow 50,000 71,000 Estimated useful life 5 years 6 years Salvage value -0- -0- The company requires a 10% rate of return on all new investments. Present Value of an Annuity of 1 Period 9% 10% 11% 12% 5 3.890 3.791 3.696 3.605 6 4.486 4.355 4.231 4.111 The internal rate of return for Project RS1 is closest to?
4. Capital expenditure of a new investment project is $ 120,000,000; the expected annualnet cash flows generated from the investment are given below. Supposethat the company's cost of capital is 10%, calculate and comment on the accounting rate of return, internal rate of return, and discounted payback period of the project. Cash flows($000) DE (10%) 40,000 42,000 50,000 Years 1. 0.909 2. 0.826 0.751 52,000 0.683 55,000 0.621 SV 60,000 0.565
Staple Company is considering two capital investment proposals. Estimates regarding each project are provided below: Project Beans Project Rice Initial investment Annual net income Net annual cash flow Estimated useful life Salvage value Periods 5 6 9% The company requires a 10% rate of return on all new investments. Present Value of an Annuity of 1 11% 12% 3.890 4.486 10% 3.791 $400,000 4.355 20,000 100,000 5 years -0- 3.696 4.231 $600,000 42,000 142,000 6 years -0- The net present value for Project Rice is 3.605 4.111
4. Capital expenditure of a new investment project is $ 120,000,000; the expected annual net cash flows generated from the investment are given below. Suppose that the company's cost of capital is 10%, calculate and comment on the accounting rate of return, internal rate of return, and discounted payback period of the project. Years Cash flows($000) DF (10%) 1 40,000 0.909 2 42,000 0.826 3 50,000 0.751 4 52,000 0.683 5 55,000 0.621 SV 60,000 0.565
Wildhorse Company is considering two capital investment proposals. Estimates regarding each project are provided below: Initial investment Annual net income Net annual cash inflow Estimated useful life Salvage value Periods 5 6 Project Soup $520000 0000 48000 12%. 10%. 11%, 9%. 156000 5 years 0 Project Nuts $720000 The company requires a 10% rate of return on all new investments. 46000 175000 6 years Present Value of an Annuity of 1 0 9% 10% 11% 12% 3.89 3.791 3.696 3,605 4.486 4.355 4.231 4.111 The internal rate of return for Project Nuts is approximately
Joliet Company is considering two alternative investments. The company requires an 18% return from its investments. Category Project X Project Y Initial Investment 108,000 $98,000 Net cash flows anticipated: Year 1 36,000 25,000 Year 2 39,000 45,000 Year 3 32,000 42,000 Year 4 34,000 28,000 Year 5 25,000 17,000 Compute the IRR for both Projects and recommend one of them.
6. Joliet Company is considering two alternative investments. The company requires an 18% return from its investments. Category Initial Investment Net cash flows anticipated: Year 1 Year 2 Year 3 Year 4 Year 5 Project X 108,000 36,000 39,000 32,000 34,000 25,000 Compute the IRR for both Projects and recommend one of them. Project Y $98,000 25,000 45,000 42,000 28,000 17,000
Newex, Inc. has a capital investment opportunity with the following cash flows: Year Cash Flow (100,000) 60,000 2 40,000 3 30,000 4 20,000 Which of the following is closest to the project's payback period? 2 years 2.5 years 4 years 3.7 years 2.8 years
Calculate the:Net Present Value (NPV) of the investment and comment on the viability of the investment project. The annual incremental profits/ (losses) relating to the investment are estimated as follows: Years CF’s (000) Year 0 -175,000 Year 1 K11,000 Year 2 K3,000 Year 3 K34,000 Year 4 K47,000 Year 5 K8,000 Investment at the start of the project would be K175, 000,000.the investment sum assuming nil disposal value after five years, would be written off using the equal instalment method. The depreciation has been included in the profit estimates above, which should be assumed to arise at each year end. Assume the cost of Capital is 12% Year 0 Year 1 Year 2 Year 3 Year 4 Year 5 D.f 1.00 0.893 0.797 0.712 0.636 0.567
Below are two potential investment alternatives: Initial capital investment 180,000 Estimated useful life 3 years Estimated annual cash inflow each year 80,000 Desired rate of return 10% Assume straight-line depreciation in all computations, and ignore income taxes. The net-present value in this investment is _____. 18,948 (123,652) 75,000 186,518

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	Project LS1	Project RS1
Initial investment	P2000,000	P300,000
Annual net income	10,000	21,000
Net annual cash inflow	50,000	71,000
Estimated useful life	5 years	6 years
Salvage value	-0-	-0-

Period	9%	10%	11%	12%
5	3.890	3.791	3.696	3.605
6	4.486	4.355	4.231	4.111