PNG Pharmaceuticals is considering an investment in a new automated materialshandling system that is expected to reduce its drug manufacturing costs byeliminating much of the waste currently involved in its specialty drug division.The new system will require an initial investment of $. 50,000 and is expected toprovide cash savings over the next six-year and Cost of Capital is 10% period asfollows.Year Expected Cash FlowPV of Cash Flow at 10%115,00023458,00010,00012,00014,000616,000NPVPlBCR

Benefit cost ratio:The benefit-cost ratio, a pivotal metric in financial analysis, encapsulates the…

The new system will require an initial investment of $. 50,000 and is expected to provide cash savings over the next six-year and Cost of Capital is 10% period as follows. Year Expected Cash Flow PV of Cash Flow at 10% 1 15,000 2 8,000 3 10,000 4 12,000 5 14,000 6 16,000 NPV

The new system will require an initial investment of $. 50,000 and is expected to provide cash savings over the next six-year and Cost of Capital is 10% period as follows. Year Expected Cash Flow PV of Cash Flow at 10% 1 15,000 2 8,000 3 10,000 4 12,000 5 14,000 6 16,000 NPV

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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Concept explainers

Cash Flow Statement Analysis

A company's cash flow is the movement of its cash inflows and cash outflows. A cash flow statement is prepared to determine changes in an organization's cash position. A cash flow statement shows how much money was generated and spent on the business during the fiscal year. The cash flow analysis is a method of analyzing an organization's investing, financing, and operating activities. A cash flow statement reveals an organization's liquidity and solvency, as well as its ability to change cash flows in the future. It eliminates the other effects of accounting methods by improving the comparability of different organizations' operational performance.

Question

PNG Pharmaceuticals is considering an investment in a new automated materials
handling system that is expected to reduce its drug manufacturing costs by
eliminating much of the waste currently involved in its specialty drug division.
The new system will require an initial investment of $. 50,000 and is expected to
provide cash savings over the next six-year and Cost of Capital is 10% period as
follows.
Year Expected Cash Flow
PV of Cash Flow at 10%
1
15,000
23
45
8,000
10,000
12,000
14,000
6
16,000
NPV
Pl
BCR

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Calculate the IRR and NPV for a $1,000,000 investment with a 5% return annually over a 5 year period for a total of $ 1,200,000. Use a WACC value of 14.54%.
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