Week 8 Excel Spreadsheet to be used with the Practice Set:YearsAcquisition stage cash flow:Initial OutlayOperating stage cash flow:SalesFixed CostVariable CostDepreciation expenseTaxable incomeTaxes0(800,000)12345678After tax incomeAdd back depreciationOperating cash flows600,000 600,000 600,000 600,000(220,000) (220,000) (220,000) (220,000)(240,000) (240,000) (240,000) (240,000)(68,000) (68,000) (68,000) (68,000)72,000 72,000 72,000 72,000(20,160) (20,160) (20,160) (20,160)51,840 51,840 51,84068,000 68,000 68,000119,840 119,840 119,84051,84068,000119,840600,000 600,000 600,000 600,000(220,000) (220,000) (220,000) (220,000)(240,000) (240,000) (240,000) (240,000)(68,000) (68,000) (68,000) (68,000)72,000 72,000 72,000 72,000(20,160) (20,160) (20,160) (20,160)51,840 51,840 51,840 51,84068,000 68,000 68,000 68,000119,840 119,840 119,840 119,840Disposition stage cash flow:500,000Total cash flowPresent Value(800,000)872,591119,840119,840 119,840119,840 119,840 119,840119,840 619,840Net Present Value72,591

The Week 8 Excel Spreadsheet for the Practice Set includes various financial metrics related to cash…

Answered: Week 8 Excel Spreadsheet to be used…

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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Question 3 Consider the following projected cash flows (including reversion) for Property A and Property B for the following 10 years. Assume that operating cash flows (excluding reversion) = NOI, there are no capital expenditures. Annual net cash flow projections for two properties ($ millions) 1 2 3 4 5 6 7 8 9 10 A $1.0000 $1.0050 $1.0100 $1.0151 $1.0202 $1.0253 $1.0304 $1.0355 $1.0407 $12.7252 B $1.0000 $1.0200 $1.0404 $1.0612 $1.0824 $1.1041 $1.1262 $1.1487 $1.1717 $14.7395 a. What is the annual growth rate in operating cash flows for each building during the first nine years? b. If both properties sell at cap rates (initial and terminal cash yields) of 9%, what is the expected annual return (IRR) on a 10-year investment in each property?
ok ences Mc Graw Hill Graff, Incorporated, has sales of $50,000, costs of $23,000, depreciation expense of $2,250, and interest expense of $2,000. If the tax rate is 23 percent, what is the operating cash flow, or OCF? (Do not round intermediate calculations and round your answer to the nearest whole number, e.g., 32.) Operating cash flow 2 #3 3 89 $ 4 000 000 % 5 8
Assume a $260,000 investment and the following cash flows for two products: Year Product X Product Y 1 23 $ 90,000 80,000 81,000 40,000 $ 80,000 70,000 50,000 80,000 a. Calculate the payback for products X and Y. Note: Do not round intermediate calculations. Round your answers to 2 decimal places. Product X Product Y years years
Clearcast Communications Inc. is considering allocating a limited amount of capital investment funds among four proposals. The amount of proposed investment, estimated operating income, and net cash flow for each proposal are as follows: Operating Income Net Cash Flow Investment Year Proposal A: $450,000 $ 30,000 1 $120,000 2 30,000 120,000 3 20,000 110,000 4 10,000 100,000 (30,000) $ 60,000 $ 60,000 40,000 60,000 $510,000 $100,000 Proposal B: $200,000 1 80,000 3 20,000 60,000 4 (10,000) 30,000 (20.000) $ 90,000 20.000 $290,000 (Continued)
Year Cash Flow 0 -$ 17,400 1 9,700 8,600 5,100 2 3 a. What is the profitability index for the set of cash flows if the relevant discount rate is 11 percent? (Do not round intermediate calculations and round your answer to 3 decimal places, e.g., 32.161.) b. What is the profitability index for the set of cash flows if the relevant discount rate is 16 percent? (Do not round intermediate calculations and round your answer to 3 decimal places, e.g., 32.161.) c. What is the profitability index for the set of cash flows if the relevant discount rate is 23 percent? (Do not round intermediate calculations and round your answer to 3 decimal places, e.g., 32.161.) a. Profitability index b. Profitability index c. Profitability index
D Open recovered wor x✓ fx 0 A B C D E F OMEGA PROJECT CASH FLOW INFORMATION Year Inflow Outflow = Newflow 0 1 2 3 G -$225,000 -$190,000 $150,000 $190,000 $215,000 $175,000 $197,000 $70,000 $582,000 $225,000 0 $190,000 $150,000 0 $220,000 $30,000 4 $215,000 0 5 $205,000 $30,000 6 $197,000 0 7 $100,000 $30,000 Total $1,087,000 $505,000 Required ROI 18% Project Omega NPV (Year 0) Project Omega Total NPV Which of the two projects would you fund and why? ▶ 3T Company Data + Ready have on project selection? (Reference Section 2.4, pg 38-39) 19 MAY 910 30 H NPV I K L M N O ALPHA PROJECT CASH FLOW INFORMATION Year Inflow Outflow = 0 1 $50,000 2 $150,000 3 $250,000 4 $250,000 5 $200,000 6 $180,000 7 $120,000 Total $ 1,200,000 Required ROI Project Alpha NPV (Year 1). Project Alpha NPV 1 tv $300,000 $100,000 0 $50,000 0 $50,000 0 $30,000 $530,000 18% d P Newflow -$300,005 -$50,000 $150,000 $200,000 $250,000 $150,000 $180,000 $90,000 $670,000 A Q NPV
Consider the following projects cash flows: End of Year (n) Project A Project B Project C Project D -$1,000 -$3,000 $2,000 - $4,000 1 $200 $2,000 -$600 -$1,000 2 $500 $2,000 -$600 $6,000 3 $600 -$1,500 - $600 4 $400 $2,000 - $600 $2,000 Which of the following statements is correct ? Select one: a. Project A is the only simple investment b. Project A andD are the only projects that will have a unique positive rate of return c. Project B is the only non simple investment d. None of the above
Year Net Cash Flow Discount Factor Present Value (using the factor) Present Value (using Excel formula) 0 $ (3,500,000.00) 1 $(3,500,000.00) ($3,500,000.00) 1 $900,000.00 0.90909 $818, 181.00 $818, 181.82 2 $ 900,000.00 0.82645 $743,805.00 $743, 801.65 3 $900,000.00 0.75131 $676, 179.00 $676, 183.32 4 $ 900,000.00 0.68301 $614,709.00 $614,712.11 5 $900,000.00 0.62092 $558, 828.00 $558,829.19 Net Present Value $(88,298.00) $(88,291.91) 3. Now assume that inflation is estimated as a 5% increase each year (starting with Year 1) for the entire 5 years. Calculate the new net cash flow values for each year. Hint: You should start with 5% increase for Year 1 net cash flow.
($ thousands) Present value at 19% Net cash flow Net present value 0 1 4 -13,700 -1,594 -13,700 -1,339 3,541 (sum of PVs). Period 2 3 6 3,057 6,433 10,644 10,095 5,867 2,159 3,817 5,308 4,230 2,066 5 7 3,379 1,000 Restate the above net cash flows in real terms. Discount the restated cash flows at a real discount rate. Assume a 19% nominal rate and 11% expected inflation. NPV should be unchanged at +3,541, or $3,541,000. Note: Negative answers should be indicated by a minus sign. Do not round intermediate calculations. Enter your answers in thousands rounded to the nearest whole number. Year 0 Year 1 Year 2 Year 3 Year 4 Year 5 Year 6 Year 7 Real Net Cash Flows NPV
2. Calculating Project NPV The Fleming Company is considering a new investment. Financial projections for the investment are tabulated below. The corporate tax rate is 22 percent. Assume all sales revenue is received in cash, all operating costs and income taxes are paid in cash, and all cash flows occur at the end of the year. All net working capital is recovered at the end of the project. Investment Sales revenue Operating costs Depreciation Net working capital spending Year 0 $32,800 450 Year 1 Year 2 Year 3 Year 4 $14,200 2,100 8,200 175 $15,900 $15,700 2,100 2,100 8,200 8,200 250 275 $12,900 2,100 8,200 ? a. Compute the incremental net income of the investment for each year. b. Compute the incremental cash flows of the investment for each year. c. Suppose the appropriate discount rate is 12 percent. What is the NPV of the project?
Problem 1: Consider the following cash flows and assume i = 10% for all analyses purposes: Project Cash Flows A D -$2,500 -$7,000 -$5,000 -$5,000 1 $650 -$2,500 -$2,000 -$500 2 $650 -$2,000 -$2,000 -$500 $650 -$1,500 -$2,000 $4,000 4 $600 -$1,500 -$2,000 $3,000 5 $600 -$1,500 -$2,000 $3,000 $600 -$1,500 -$2,000 $2,000 7 $300 -$2,000 $3,000 8 $300 a) Compute the project balances for Projects A and D, as a function of project year b) Compute the future worth values for Projects A and D at the end of service life. c) Suppose that Projects B and C are mutually exclusive. Assume also that the required service period is eight years and that the company is considering leasing comparable equipment that has an annual lease expense of $3,000 for the remaining years of the required service period for both projects. Which project is the better choice?
Year Net Cash Flow Discount Factor Present Value (using the factor) Present Value (using Excel formula) 0 $ (3,500,000.00) 1 $ (3,500,000.00) ($3,500,000.00) 1 $ 900,000.00 0.90909 $ 818,181.00 $818,181.82 2 $ 900,000.00 0.82645 $ 743,805.00 $743,801.65 3 $ 900,000.00 0.75131 $ 676,179.00 $676,183.32 4 $ 900,000.00 0.68301 $ 614,709.00 $614,712.11 5 $ 900,000.00 0.62092 $ 558,828.00 $558,829.19 Net Present Value $ (88,298.00) $ (88,291.91) 3. Now assume that inflation is estimated as a 5% increase each year (starting with Year 1) for the entire 5 years. Calculate the new net cash flow values for each year. start with 5% increase for Year 1 net cash flow. Year Net Cash Flow 0 $…

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