2 Problem Set 5345 Assigned Problem 26 Great Lakes Clinic has been asked to provide exclusive healthcare services for next year's World7 Exposition. Although flattered by the request, the clinic's managers want to conduct a financial8 analysis of the project. There will be an up-front cost of $160,000 to get the clinic in operation. Then,9 a net cash inflow of $1 million is expected from operations in each of the two years of the exposition.10 However, the clinic has to pay the organizers of the exposition a fee for the marketing value of the11 opportunity. This fee, which must be paid at the end of the second year, is $2 million.12Chapter 11 -- Capital Budgeting13 a. What are the cash flows associated with the project that are relevant for capital budgeting purpose?1415 b. Find the project NPV if its cost of capital is 25 percent and if its cost of capital is 400%.1617 c. From the results in b, can we conclude what the IRR of this project is? Why or why not?1819 d. If the project cost capital is 10 percent, what would be the project's NPV in this case?20 Shoud the project be undertaken?

NPV (Net Present Value) is a financial indicator used in investment appraisal to determine the…

Problem Set 5 Chapter 11 -- Capital Budgeting Assigned Problem 2 Great Lakes Clinic has been asked to provide exclusive healthcare services for next year's World Exposition. Although flattered by the request, the clinic's managers want to conduct a financial analysis of the project. There will be an up-front cost of $160,000 to get the clinic in operation. Then, a net cash inflow of $1 million is expected from operations in each of the two years of the exposition. However, the clinic has to pay the organizers of the exposition a fee for the marketing value of the opportunity. This fee, which must be paid at the end of the second year, is $2 million. a. What are the cash flows associated with the project that are relevant for capital budgeting purpose? b. Find the project NPV if its cost of capital is 25 percent and if its cost of capital is 400%. c. From the results in b, can we conclude what the IRR of this project is? Why or why not? d. If the project cost capital is 10 percent, what would be the project's NPV in this case? Shoud the project be undertaken?

Problem Set 5 Chapter 11 -- Capital Budgeting Assigned Problem 2 Great Lakes Clinic has been asked to provide exclusive healthcare services for next year's World Exposition. Although flattered by the request, the clinic's managers want to conduct a financial analysis of the project. There will be an up-front cost of $160,000 to get the clinic in operation. Then, a net cash inflow of $1 million is expected from operations in each of the two years of the exposition. However, the clinic has to pay the organizers of the exposition a fee for the marketing value of the opportunity. This fee, which must be paid at the end of the second year, is $2 million. a. What are the cash flows associated with the project that are relevant for capital budgeting purpose? b. Find the project NPV if its cost of capital is 25 percent and if its cost of capital is 400%. c. From the results in b, can we conclude what the IRR of this project is? Why or why not? d. If the project cost capital is 10 percent, what would be the project's NPV in this case? Shoud the project be undertaken?

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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Answer 6-10
R2 your department manager has proposed in the capital budget for 2016 that the organization acquire an upgrade for a piece of equipment that will reduce the labor requirements for the department by an estimated 175,000 annually. The cost of the upgrade will be 200,000 and will require annual maintenance cost of 60,000. The organization uses a 10% discount rate and requires a positive cumulative net present value by the end of the second year of such an investment. Using the discounted cash flow method, determine whether the investment will meet the organizations criteria Capital cost ________ Annual operating cost______ Annual benefit______ Cumulative net present value_____ Does this investment meet the organizations investment criteria at a 10%discount rate?
Question 2 The ABC Corporation wants to set up a private cemetery business. According to the CFO, Barry M. Deep, business is "looking up." As a result, the cemetery project will provide a net cash inflow of $40,000 for the firm during the first year, and the cash flows are projected to grow at a rate of 7 percent per year forever. The project requires an initial investment of $650,000. (a) If ABC requires a 14 percent return on such undertakings, should the cemetery business be started? Why? (5 marks) (b) The company is somewhat unsure about the assumption of a 7 percent growth rate in its cash flows. At what constant growth rate would the company just break even if it still required a 14 percent return on investment? (5 marks)
None
Question 3 Midwest University has an annual budget of R5 000 000 for athletic scholarships. Each athletic scholarship is for R20 000 per annum. Fixed operating costs of the athletics scholarship program are R600 000, and variable operating costs are R2 000 per scholarship offered. Required: 3.1 Calculate the number of athletic scholarships Midwest University can offer each year. 3.2 Suppose the total budget for next year is reduced by 22%. Fixed costs are to remain the same. Calculate the number of athletic scholarships that Midwest can offer next year. 3.3 As in 3.2 above, assume a budget reduction of 22% and the same fixed costs. If Midwest wanted to offer the same number of athletic scholarships as it did in 3.1, calculate the amount that will be paid to each student who receives a scholarship.
QUESTION ONE You are a senior manager at Zambia Airways and have been authorized to spend up to K400,000 for projects. The three projects you are considering have the following characteristics: Project Project A Details Initial investment of K280,000. Cash flow of K190,000 at year 1 and K170,000 at year 2. This is a plant expansion project. Initial investment of K390,000. Cash flow of K270,000 at year 1 and K240,000 at year 2. This is a new product development project. Initial investment of K230,000. Cash flow of K160,000 at year 1 and K190,000 at year 2. This is a market expansion project. Project B Project C Assume the corporate discount rate is 10 percent, please offer your recommendations by ranking the projects, backed by your analysis using: (i) Net Present Value (ii) Profitability Index (iii) Payback period, and (iv) Critique the flaws of each technique. [6 marks] [5 marks] [3 marks] [6 marks] Total [20 marks]
Problem 9-34 Project Evaluation (LO4) The following table presents sales forecasts for Golden Gelt Giftware. The unit price is $40. The unit cost of the giftware is $25. Year 1 2 3 4 Thereafter Unit Sales 25,000 45,000 29,000 5,000 0 It is expected that net working capital will amount to 20% of sales in the following year. For example, the store will need an initial (Year O) investment in working capital of .20 × 25,000 × $40 = $200,000. Plant and equipment necessary to establish the giftware business will require an additional investment of $275,000. This investment will depreciate on the MACRS schedule over 3 years. After 4 years, the equipment will have an economic and book value of zero. The firm's tax rate is 30%. The discount rate is 20%. Use the MACRS depreciation schedule. a. What is the net present value of the project? Note: Do not round intermediate calculations. Round your answer to the nearest whole dollar amount. a. Net present value b. Increase in NPV
PROBLEM 2 fol Acoustics, Inc. (AA) projects unit sales for a new seven-octave voice emulation implantas follows: Year 1 2 3 4 5 Production of the implants will require $2,350,000 in net working capital to start and additional net working capital investments each year equal to 25 percent of the projected sales increase for the following year. Total fixed costs are $1,490,000 per year, variable production costs are $239 per unit, and the units are priced at $359 each. The equipment needed to begin production has an installed cost of $30,000,000. Because the implants are intended for professional singers, this equipment is considered industrial machinery and thus qualifies as seven-year MACRS (MACRS Table) property. In five years, this equipment can be sold for about 20 percent of its acquisition cost. AAI is in the 40 percent marginal tax bracket and has a required return on all its projects of 16 percent. Unit Sales 115,000 134,000 122,000 105,000 91,000 What are operating cash flows,…
9
Questtion in the attached
A1
Not use excel

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