The Purple Lion Beverage Company expects the following cash flows from its manufacturing plant in Palau over the next five years:Year 1$250,000Annual Cash FlowsYear 2$20,000Year 3 Year 4$180,000 $450,000Year 5$550,000The CFO of the company believes that an appropriate annual interest rate on this investment is 4%. What is the present value of this uneven cash flowstream, rounded to the nearest whole dollar?

The objective of the question is to calculate the present value of an uneven cash flow stream. The…

Answered: The Purple Lion Beverage Company…

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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We are examining a new project. We expect to sell 8,800 units per year at $191 net cash flow apiece (including CCA) for the next 16 years. In other words, the annual operating cash flow is projected to be $191 × 8,800 = $1,680,800. The relevant discount rate is 10%, and the initial investment required is $5,590,000. Suppose you think it is likely that expected sales will be revised upward to 9,550 units if the first year is a success a. If success and failure are equally likely, what is the NPV of the project? Consider the possibility of abandonment in answering. (Do not round intermediate calculations. Round the final answer to 2 decimal places. Omit $ sign in your response.) NPV $ b. After the first year, the project can be dismantled and sold for $2,846,000. What is the value of the option to abandon? (Negative answer should be indicated by a minus sign. Do not round intermediate calculations. Round the final answer to 2 decimal places. Omit $ sign in your response.) The value…
Suppose a company could invest in a machine that would be able to produce $1,000,000 worth of saleable merchandise in one year, $2,000,000 for another two years then $1,000,000 for another three years. If the required rate of return for the company is 8%, what is the value of the machine's future cash flows to the company today?
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A firm expects to make payments of 1.1, 1.5, 1.2, 1.4 and 1.9 million for a particular supply over each of the next 5 years. What constant annual payment is this equivalent to if the annual rate is 10%? That is, what is the time-value weighted average of this mixed-cash flow stream?
Your consulting firm will produce cash flows of $145,000 this year, and you expect cash flows thereafter to keep pace with any increase in the general level of prices. The interest rate currently is 6.9%, and you anticipate inflation of about 2.9%. a. What is the present value of your firm's cash flows for years 1 through 5? Note: Do not round intermediate calculations. Round your answer to 2 decimal places. Present value $ Present value 279,013.75 b. How would your answer to (a) change if you anticipated no growth in cash flow? Note: Do not round intermediate calculations. Round your answer to 2 decimal places.
8. Unevencash flows A series, or stream, of cash flows may not always necessarily be an annuity. Cash flows can also be uneven and nonconstant, but the concept of the time value of money applies to uneven cash flows as well. Consider the following case: Swanky Beverage Co. expects the following cash flows from its manufacturing plant in Palau over the next 6 years: Year Annual Cash Flows 1 $1,200,000 2 $3,650,000 $5,750,000 $4,400,000 $3,800,000 $4,500,000 3 4 5 6
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s
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