NPV of the project. 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 .

Question

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Answer 1

Question

Chapter 10, Problem 1OR

a)

Summary Introduction

To determine:

NPV of the project.

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.

a)

Expert Solution

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:

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)

Summary Introduction

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)

Expert Solution

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) ,

NPV=AC((1+r)n−1)r(1+r)n−I0 (1)

By trial and error method let us assume the cost of capital to be 0.11.

NPV=30,450,000(((1+0.11)5−1)0.11(1+0.11)5)−67,800,000=(30,450,000×3.695897)−67,800,000=112,540,064−67,800,000=44,740,064

When substituting 11%, NPV is $44,740,064. Since the calculated NPV is greater than the given NPV, increase the interest rate 11.19%.

NPV=30,450,000(((1+0.1119)5−1)0.1119(1+0.1119)5)−67,800,000=(30,450,000×3.6783)−67,800,000=112,004,238−67,800,000=44,204,238

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)

Summary Introduction

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)

Expert Solution

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:

Payback period=Initial investmentCash inflow per year=67,800,00030,450,000=2.226

The payback period for project is 2 years and 3 months.

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You are given the following data for a project that is to be evaluated using the APV method. Year EBIT CAPEX Depreciation Increase in NWC Year-end net debt $80,000 O $201.765 O $185,617 O $193,822 0 O$222,872 Cost of net debt-8% Unlevered cost of capital = 11.8% Corporate tax rate = 30% Calculate the total value of the project at t = 0, using the APV method. O $213,918 1 $127,000 $60,000 $72,000 $50,000 $100,000 2 $133,000 $40,000 $80,000 $60,000 $140,000 3 $138,500 $10,000 $84,000 $30,000 $140,000

You are given the following financial information related to a capital investment project. What is the project's Year 1 Net Cash Flow? Sales revenues Depreciation Other operating costs Interest Exp Tax rate WACC Select one: a. $8,580 b. $8,900 c. $9,350 d. $9,463 e. $9,832 $22,250 $8,000 $12,000 $800 40.0% 12.0%

Answer 2

Question

Chapter 10, Problem 1OR

a)

Summary Introduction

To determine:

NPV of the project.

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.

a)

Expert Solution

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:

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)

Summary Introduction

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)

Expert Solution

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) ,

NPV=AC((1+r)n−1)r(1+r)n−I0 (1)

By trial and error method let us assume the cost of capital to be 0.11.

NPV=30,450,000(((1+0.11)5−1)0.11(1+0.11)5)−67,800,000=(30,450,000×3.695897)−67,800,000=112,540,064−67,800,000=44,740,064

When substituting 11%, NPV is $44,740,064. Since the calculated NPV is greater than the given NPV, increase the interest rate 11.19%.

NPV=30,450,000(((1+0.1119)5−1)0.1119(1+0.1119)5)−67,800,000=(30,450,000×3.6783)−67,800,000=112,004,238−67,800,000=44,204,238

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)

Summary Introduction

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)

Expert Solution

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:

Payback period=Initial investmentCash inflow per year=67,800,00030,450,000=2.226

The payback period for project is 2 years and 3 months.

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Answer 3

Question

Chapter 10, Problem 1OR

a)

Summary Introduction

To determine:

NPV of the project.

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.

a)

Expert Solution

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:

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)

Summary Introduction

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)

Expert Solution

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) ,

NPV=AC((1+r)n−1)r(1+r)n−I0 (1)

By trial and error method let us assume the cost of capital to be 0.11.

NPV=30,450,000(((1+0.11)5−1)0.11(1+0.11)5)−67,800,000=(30,450,000×3.695897)−67,800,000=112,540,064−67,800,000=44,740,064

When substituting 11%, NPV is $44,740,064. Since the calculated NPV is greater than the given NPV, increase the interest rate 11.19%.

NPV=30,450,000(((1+0.1119)5−1)0.1119(1+0.1119)5)−67,800,000=(30,450,000×3.6783)−67,800,000=112,004,238−67,800,000=44,204,238

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)

Summary Introduction

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)

Expert Solution

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:

Payback period=Initial investmentCash inflow per year=67,800,00030,450,000=2.226

The payback period for project is 2 years and 3 months.

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Answer 4

Question

Chapter 10, Problem 1OR

a)

Summary Introduction

To determine:

NPV of the project.

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.

a)

Expert Solution

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:

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)

Summary Introduction

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)

Expert Solution

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) ,

NPV=AC((1+r)n−1)r(1+r)n−I0 (1)

By trial and error method let us assume the cost of capital to be 0.11.

NPV=30,450,000(((1+0.11)5−1)0.11(1+0.11)5)−67,800,000=(30,450,000×3.695897)−67,800,000=112,540,064−67,800,000=44,740,064

When substituting 11%, NPV is $44,740,064. Since the calculated NPV is greater than the given NPV, increase the interest rate 11.19%.

NPV=30,450,000(((1+0.1119)5−1)0.1119(1+0.1119)5)−67,800,000=(30,450,000×3.6783)−67,800,000=112,004,238−67,800,000=44,204,238

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)

Summary Introduction

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)

Expert Solution

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:

Payback period=Initial investmentCash inflow per year=67,800,00030,450,000=2.226

The payback period for project is 2 years and 3 months.

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Answer 5

Chapter 10, Problem 1OR

a)

Summary Introduction

To determine:

NPV of the project.

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.

a)

Expert Solution

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:

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)

Summary Introduction

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)

Expert Solution

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) ,

NPV=AC((1+r)n−1)r(1+r)n−I0 (1)

By trial and error method let us assume the cost of capital to be 0.11.

NPV=30,450,000(((1+0.11)5−1)0.11(1+0.11)5)−67,800,000=(30,450,000×3.695897)−67,800,000=112,540,064−67,800,000=44,740,064

When substituting 11%, NPV is $44,740,064. Since the calculated NPV is greater than the given NPV, increase the interest rate 11.19%.

NPV=30,450,000(((1+0.1119)5−1)0.1119(1+0.1119)5)−67,800,000=(30,450,000×3.6783)−67,800,000=112,004,238−67,800,000=44,204,238

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)

Summary Introduction

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)

Expert Solution

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:

Payback period=Initial investmentCash inflow per year=67,800,00030,450,000=2.226

The payback period for project is 2 years and 3 months.

Answer 6

Chapter 10, Problem 1OR

a)

Summary Introduction

To determine:

NPV of the project.

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.

a)

Expert Solution

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:

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.

Answer 7

Chapter 10, Problem 1OR

a)

Summary Introduction

To determine:

NPV of the project.

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.

Answer 8

a)

Expert Solution

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:

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.

Answer 9

a)

Expert Solution

Answer 10

a)

Expert Solution

Answer 11

Expert Solution

Answer 12

b)

Summary Introduction

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)

Expert Solution

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) ,

NPV=AC((1+r)n−1)r(1+r)n−I0 (1)

By trial and error method let us assume the cost of capital to be 0.11.

NPV=30,450,000(((1+0.11)5−1)0.11(1+0.11)5)−67,800,000=(30,450,000×3.695897)−67,800,000=112,540,064−67,800,000=44,740,064

When substituting 11%, NPV is $44,740,064. Since the calculated NPV is greater than the given NPV, increase the interest rate 11.19%.

NPV=30,450,000(((1+0.1119)5−1)0.1119(1+0.1119)5)−67,800,000=(30,450,000×3.6783)−67,800,000=112,004,238−67,800,000=44,204,238

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..).

Answer 13

b)

Summary Introduction

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.

Answer 14

b)

Expert Solution

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) ,

NPV=AC((1+r)n−1)r(1+r)n−I0 (1)

By trial and error method let us assume the cost of capital to be 0.11.

NPV=30,450,000(((1+0.11)5−1)0.11(1+0.11)5)−67,800,000=(30,450,000×3.695897)−67,800,000=112,540,064−67,800,000=44,740,064

When substituting 11%, NPV is $44,740,064. Since the calculated NPV is greater than the given NPV, increase the interest rate 11.19%.

NPV=30,450,000(((1+0.1119)5−1)0.1119(1+0.1119)5)−67,800,000=(30,450,000×3.6783)−67,800,000=112,004,238−67,800,000=44,204,238

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..).

Answer 15

b)

Expert Solution

Answer 16

b)

Expert Solution

Answer 17

Expert Solution

Answer 18

c)

Summary Introduction

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)

Expert Solution

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:

Payback period=Initial investmentCash inflow per year=67,800,00030,450,000=2.226

The payback period for project is 2 years and 3 months.

Answer 19

c)

Summary Introduction

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.

Answer 20

c)

Expert Solution

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:

Payback period=Initial investmentCash inflow per year=67,800,00030,450,000=2.226

The payback period for project is 2 years and 3 months.

Answer 21

c)

Expert Solution

Answer 22

c)

Expert Solution

Answer 23

Expert Solution

Answer 24

Ch. 10.1 - What is the financial managers goal in selecting...Ch. 10.2 - What is the payback period? How is it calculated?Ch. 10.2 - What weaknesses are commonly associated with the...Ch. 10.3 - How is the net present value (NPV) calculated for...Ch. 10.3 - Prob. 10.5RQ Ch. 10.3 - Prob. 10.6RQ Ch. 10.4 - Prob. 10.8RQ Ch. 10.4 - Prob. 10.9RQ Ch. 10.4 - Prob. 10.10RQ Ch. 10.5 - How is a net present value profile used to compare...

NPV of the project. 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 .

To determine: NPV of the project. 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.

Explanation of Solution

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.

Explanation of Solution

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.

Explanation of Solution

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Chapter 10 Solutions

To determine:

NPV of the project.

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.

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.

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.