
a)
To determine:
NPV of the project.
Introduction:
The difference between the present value of cash inflows and the present value of
a)

Explanation of Solution
Given information:
The initial investment for the project is $67,800,000 and it generates an annual
Explanation:
The given information helps us to conclude that the project has a positive NPV and a very high IRR with initial outflow and subsequent cash inflows. Thus, the project should have a cost of capital less than the IRR value.
b)
To determine:
Cost of capital of the firm.
Introduction:
The difference between the present value of cash inflows and the present value of cash outflows over a period of time is known as the Net Present value. Cost of capital is the cost of long term financing of the firm.
b)

Explanation of Solution
Given information:
The initial investment for the project is $67,800,000 and it generates an annual cash inflow of $30,450,000 for 5 years. The project NPV is $44,200,000 and the IRR is 34.8%.
Explanation:
When the initial investment I0 ,annual cash flow (AC), rate of interest r, and the time period n is given NPV can be calculated using the equation (1) ,
By trial and error method let us assume the cost of capital to be 0.11.
When substituting 11%, NPV is $44,740,064. Since the calculated NPV is greater than the given NPV, increase the interest rate 11.19%.
When the interest rate is 11.19%, the NPV is nearly equal to the given NPV $44,200,000. Thus, cost of capital of the firm is 11.19% (approx..).
c)
To determine:
The payback period of the firm.
Introduction:
Every investment requires a time period to pay back the cost of investment. The time period taken to recover the cost of an investment is known as the payback period.
c)

Explanation of Solution
Given information:
The initial investment for the project is $67,800,000 and it generates an annual cash inflow of $30,450,000 for 5 years. The project NPV is $44,200,000 and the IRR is 34.8%.
Explanation:
Payback period for project can be calculated as follows:
The payback period for project is 2 years and 3 months.
Want to see more full solutions like this?
Chapter 10 Solutions
Principles of Managerial Finance, Student Value Edition (15th Edition) (The Pearson Series in Finance)
- If value is not clear then please comment i will write values dont solve question, i will give unhelpful.arrow_forwardFinance subject question solve i need help.arrow_forwardi submitted blurr images mistakely don't amswer.If image is blurr comment please i will write values . dont give answer with incorrect values. i will unhelpful answerarrow_forward
- Need help!!!If image is blurr comment please i will write values . dont give answer with incorrect values. i will unhelpful answerarrow_forwardhelp !If image is blurr comment please i will write values . dont give answer with incorrect values. i will unhelpful answerarrow_forwardListed here, are the 2018 and 2019 balance sheets. motors. and income statements,, for Otago Bay Marine Motors, a major manufacturer of top-of-the-line outboard a. On the basis of the information provided, calculate the following financial ratios for 2018 and 2019: b. Considering the financial ratios you computed, along with the industry averages, how would you characterize the financial condition of Otago Bay Marine Motors? Explain. a. Calculate the following financial ratios for 2018 and 2019. (Round to two decimal places.) Current ratio Otago Bay Marine Motors 2019 2018arrow_forward
- I need to get more details by doing homeworks and exams.arrow_forwardUse the financial statement of DKT Enterprise provided above to calculate the ratio for 2024 that reflects each of the following conditions (where applicable, round off answers to two decimal places.): 1. The percentage of DKT Enterprises' revenue that remained after accounting for the cost of goods sold. 2. The percentage of DKT Enterprises' revenue that remained after all expenses, including operating costs, interest, and taxes, have been deducted. 3. The extent to which DKT Enterprises' short-term liabilities, were covered by assets that could be quickly converted into cash during the year. 4. The ratio of DKT Enterprises' liquid assets to its current liabilities, indicating the company's ability to meet short-term obligations without relying on inventory. 5. The percentage of the profit DKT Enterprises generated from its total assets during the year, reflecting how efficiently it utillises its asset base to generate earnings. 6. The percentage of the profit for the year relative…arrow_forwardDynamic Energy Wares (DEW) has decided to change the manner in which it distributes its products to large companies. The change in the distribution system comes at a time when DEW’s profits are declining. The declining profits might not be the sole reason for the change, but it appears to be the primary impetus for the decision. It also appears that the new policy requiring DEW’s distributors to increase inventory levels before the end of the fiscal year will artificially inflate DEW’s sales for the current year. However, DEW’s new policy does not require the distributors to pay for any increased inventory until next year (six months), and any unsold inventory can be returned after nine months. So, if the demand for DEW’s products actually is decreasing, the impact will appear on next year’s financial statements. If the financial manager actually intends to artificially inflate DEW’s profits this year, she must realize that such actions eventually will “catch up” with her. Discussion…arrow_forward
- what is distributors’ meeting?arrow_forwardWhat is ethical dilemma?arrow_forward$1.35 Million for the below question is incorrect, Machine A is $1.81 and Machine B is $0.46 Million. The Perez Company has the opportunity to invest in one of two mutually exclusive machines that will produce a product it will need for the foreseeable future. Machine A costs $8 million but realizes after-tax inflows of $4.5 million per year for 4 years. After 4 years, the machine must be replaced. Machine B costs $17 million and realizes after-tax inflows of $4 million per year for 8 years, after which it must be replaced. Assume that machine prices are not expected to rise because inflation will be offset by cheaper components used in the machines. The cost of capital is 13%. Using the replacement chain approach to project analysis, by how much would the value of the company increase if it accepted the better machine? Round your answer to two decimal places. 1.) $1.35 millionarrow_forward
- EBK CONTEMPORARY FINANCIAL MANAGEMENTFinanceISBN:9781337514835Author:MOYERPublisher:CENGAGE LEARNING - CONSIGNMENTManagerial AccountingAccountingISBN:9781337912020Author:Carl Warren, Ph.d. Cma William B. TaylerPublisher:South-Western College Pub
- Intermediate Financial Management (MindTap Course...FinanceISBN:9781337395083Author:Eugene F. Brigham, Phillip R. DavesPublisher:Cengage Learning


