Gitman: Principl Manageri Finance_15 (15th Edition) (What's New in Finance)
Gitman: Principl Manageri Finance_15 (15th Edition) (What's New in Finance)
15th Edition
ISBN: 9780134476315
Author: Chad J. Zutter, Scott B. Smart
Publisher: PEARSON
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Chapter 12, Problem 12.1WUE

Birkenstock is considering an investment in a nylon-knitting machine. The machine requires an initial investment of $27,000, has a 5-year life, and has no residual value at the end of the 5 years. The company's cost of capital is 10.87%. Known with less certainty are the actual after-tax cash inflows for each of the 5 years. The company has estimated expected cash inflows for three scenarios: pessimistic, most likely, and optimistic. These expected cash inflows are listed in the following table. Calculate the range for the NPV given each scenario.

Chapter 12, Problem 12.1WUE, Birkenstock is considering an investment in a nylon-knitting machine. The machine requires an

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Summary Introduction

To discuss:

The B is considered as investment in the NK Machine, the machine requires the initial investment of the $27,000 of the five years life period and have the residual value of the five years and the capital cost is 10.87%, and the company’s estimated expected cash inflows haves scenarios such as pessimistic, most likely and optimistic. These values are present in the table below. Need to determine the net present value of the current situation.

Expected cash inflows
Year Pessimistic ($) Most likely ($) Optimistic ($)
1 6,750 9,250 11,750
2 7,250 10,250 13,250
3 8,750 11,750 15,750
4 7,750 10,750 12,750
5 5,750 7,750 8,750

Introduction:

The net present value is the variation between present cash inflows values and outflow values for a time period. The net present is used the capital budgeting projects to analyse the profitability of the project

Explanation of Solution

Through the sensitivity analysis the twelve percent cost of capital to discount all of the cash flows for each scenarios yield to the following net present value ranges to $19,109.78.

The pessimistic value is -$3,283.48

The most likely value is -$6,516.99

The optimistic value is $15,826.30

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Birkenstock is considering an investment in a nylon-knitting machine. The machine requires an initial investment of $27,600, has a five-year life, and has no residual value after five years. The company's cost of capital is 10.99%. The company has estimated expected cash inflows for three scenarios: pessimistic, most likely, and optimistic. These expected cash inflows are listed in the following table. Calculate the range for the NPV across the three scenarios. (Click on the icon here in order to copy the contents of the data table below into a spreadsheet.) Year Pessimistic 1 $6,720 2 7,310 8,730 4 7,850 5 5,840 $9,320 13,270 ITTI Expected cash inflows Most likely Optimistic $11,750 10,320 11,680 10,720 15,830 12,780 7,730 8,820 For the pessimistic scenario, the NPV is $ (Round to the nearest cent.)
A management company is considering purchasing a $27,000 machine that would reduce operating costs by $7,000 per year.  At the end of the 5 years of the machine's useful life, it will be zero salvage value.   The company requires a rate of return of 12%.   1. Determine the net present value of the investment of the machine? 2.What is the difference between the total, undiscounted cash inflows and cash outflows over the entire life of the machine?
JBL Inc. is considering a new product that would require an after-tax investment of $1,400,000 at t = 0. If the new product is well received, then the project would produce after-tax cash flows of $ 650,000 at the end of each of the next 3 years (t = 1, 2, 3), but if the market did not like the product, then the cash flows would be only $100,000 per year. There is a 70% probability that the market will be good. JBL Inc. could delay the project for a year while it conducted a test to determine if demand would be strong or weak. The project's cost and expected annual cash flows are the same whether the project is delayed or not; however, the timing of the cash flows would change. (There would be the same number of cash flows-only the cash flows would be extended out one extra year.) The project's WACC is 10%. What is the value of the project after considering the investment timing option? a. $108, 226.89 b. $ 137, 743.32 c. $167, 259.75 d. $196, 776.18 e. $216, 453.79
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