a. What are the best-case and worst-case NPVs with these projections? Note: A negative answer should be indicated by a minus sign. Do not round intermediate calculations and round your answers to 2 decimal places, e.g., 32.16. b. What is the base-case NPV? Note: Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16. c. What is the sensitivity of your base-case NPV to changes in fixed costs? Note: A negative answer should be indicated by a minus sign. Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.

a. What are the best-case and worst-case NPVs with these projections? Note: A negative answer should be indicated by a minus sign. Do not round intermediate calculations and round your answers to 2 decimal places, e.g., 32.16. b. What is the base-case NPV? Note: Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16. c. What is the sensitivity of your base-case NPV to changes in fixed costs? Note: A negative answer should be indicated by a minus sign. Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.

EBK CONTEMPORARY FINANCIAL MANAGEMENT

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter9: Capital Budgeting And Cash Flow Analysis

Section: Chapter Questions

Problem 13P

See similar textbooks

Similar questions

The Rodriguez Company is considering an average-risk investment in a mineral water spring project that has an initial after-tax cost of 170,000. The project will produce 1,000 cases of mineral water per year indefinitely, starting at Year 1. The Year-1 sales price will be 138 per case, and the Year-1 cost per case will be 105. The firm is taxed at a rate of 25%. Both prices and costs are expected to rise after Year 1 at a rate of 6% per year due to inflation. The firm uses only equity, and it has a cost of capital of 15%. Assume that cash flows consist only of after-tax profits because the spring has an indefinite life and will not be depreciated. a. What is the present value of future cash flows? (Hint: The project is a growing perpetuity, so you must use the constant growth formula to find its NPV.) What is the NPV? b. Suppose that the company had forgotten to include future inflation. What would they have incorrectly calculated as the projects NPV?
Roberts Company is considering an investment in equipment that is capable of producing more efficiently than the current technology. The outlay required is 2,293,200. The equipment is expected to last five years and will have no salvage value. The expected cash flows associated with the project are as follows: Required: 1. Compute the projects payback period. 2. Compute the projects accounting rate of return. 3. Compute the projects net present value, assuming a required rate of return of 10 percent. 4. Compute the projects internal rate of return.
Friedman Company is considering installing a new IT system. The cost of the new system is estimated to be 2,250,000, but it would produce after-tax savings of 450,000 per year in labor costs. The estimated life of the new system is 10 years, with no salvage value expected. Intrigued by the possibility of saving 450,000 per year and having a more reliable information system, the president of Friedman has asked for an analysis of the projects economic viability. All capital projects are required to earn at least the firms cost of capital, which is 12 percent. Required: 1. Calculate the projects internal rate of return. Should the company acquire the new IT system? 2. Suppose that savings are less than claimed. Calculate the minimum annual cash savings that must be realized for the project to earn a rate equal to the firms cost of capital. Comment on the safety margin that exists, if any. 3. Suppose that the life of the IT system is overestimated by two years. Repeat Requirements 1 and 2 under this assumption. Comment on the usefulness of this information.
You are considering a new product launch. The project will cost $830,000, have a 4-year life, and have no salvage value; depreciation is straight-line to zero. Sales are projected at 470 units per year, price per unit will be $18,500, variable cost per unit will be $15,200, and fixed costs will be $845,000 per year. The required return on the project is 10 percent, and the relevant tax rate is 21 percent. a. The unit sales, variable cost, and fixed cost projections given above are probably accurate to within ±10 percent. What are the upper and lower bounds for these projections? What is the base-case NPV? What are the best-case and worst-case scenarios? (A negative amount should be indicated by a minus sign. Do not round intermediate calculations and round your NPV answers to 2 decimal places, e.g., 32.16.) Upper bound Lower bound Unit sales 517 423 Variable cost per unit $ 16,720 $ 13,680 Fixed costs $ 929,500 $ 760,500 Base-case $ 1,076,088.00 Best-case $ 3,643,988.00 Worst-case $…
You are considering a new product launch. The project will cost $1,950,000, have a 4-year life, and have no salvage value; depreciation is straight-line to 0. Sales are projected at 180 units per year; price per unit will be $24,000; variable cost per unit will be $15,000; and fixed costs will be $540,000 per year. The required return on the project is 10%, and the relevant tax rate is 34%. d-2. What is the degree of operating leverage at the accounting break-even point? (Round the final answer to 4 decimal places.) Note: To calculate the degree of operating leverage in this requirement, you need to use the OCF base. If you use depreciation, your answer will be marked incorrectly. Give typing answer with explanation and conclusion
You are considering a new product launch. The project will cost $960,000, have a 5-year life, and have no salvage value; depreciation is straight-line to zero. Sales are projected at 350 units per year; price per unit will be $15,955, variable cost per unit will be $12,000, and fixed costs will be $625,000 per year. The required return on the project is 10 percent, and the relevant tax rate is 23 percent. Based on your experience, you think the unit sales, variable cost, and fixed cost projections given here are probably accurate to within +10 percent. a. What are the best-case and worst-case NPVs with these projections? Note: A negative answer should be indicated by a minus sign. Do not round intermediate calculations and round your answers to 2 decimal places, e.g., 32.16. b. What is the base-case NPV? Note: Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16. c. What is the sensitivity of your base-case NPV to changes in fixed costs? Note: A…
You are considering a new product launch. The project will cost $900,000, have a 5-year life, and have no salvage value; depreciation is straight-line to zero. Sales are projected at 290 units per year; price per unit will be $15,895, variable cost per unit will be $11,700, and fixed costs will be $595,000 per year. The required return on the project is 12 percent, and the relevant tax rate is 22 percent. Based on your experience, you think the unit sales, variable cost, and fixed cost projections given here are probably accurate to within £10 percent. a. What are the best-case and worst-case NPVS with these projections? Note: A negative answer should be indicated by a minus sign. Do not round intermediate calculations and round your answers to 2 decimal places, e.g., 32.16. b. What is the base-case NPV? Note: Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16. c. What is the sensitivity of your base-case NPV to changes in fixed costs? Note: A…
You are considering a new product launch. The project will cost $750,000, have a 4-year life, and have no salvage value; depreciation is straight-line to zero. Sales are projected at 440 units per year; price per unit will be $17,700, variable cost per unit will be $14,400, and fixed costs will be $725,000 per year. The required return on the project is 12 percent, and the relevant tax rate is 23 percent. a. The unit sales, variable cost, and fixed cost projections given above are probably accurate to within ±10 percent. What are the upper and lower bounds for these projections?
You are considering a new product launch. The project will cost $1,750,000, have a 4-year life, and have no salvage value; depreciation is straight-line to 0. Sales are projected at 220 units per year; price per unit will be $20,000; variable cost per unit will be $13,000; and fixed costs will be $500,000 per year. The required return on the project is 15%, and the relevant tax rate is 35%. a. Based on your experience, you think the unit sales, variable cost, and fixed cost projections given here are probably accurate to within ±10%. What are the upper and lower bounds for these projections? What is the base-case NPV? What are the best-case and worst-case scenarios? (Negative answers should be indicated by a minus sign. Do not round intermediate calculations. Round the final NPV answers to 2 decimal places. Omit $ sign in your response.) Scenario Base Best Worst Unit Sales 220 242 198 > > > Variable Cost $13,000 Fixed Costs $ 500,000 NPV $ 617,133.94 $ 11,700 $ 450,000 $ 2,477,694.78 x…
You are considering a new product launch. The project will cost $2,350,000, have a four- year life, and have no salvage value; depreciation is straight-line to zero. Sales are projected at 330 units per year; price per unit will be $19,600, variable cost per unit will be $14,000, and fixed costs will be $720,000 per year. The required return on the project Is 10 percent, and the relevant tax rate is 21 percent. a. Based on your experience, you think the unit sales, variable cost, and fixed cost projections given here are probably accurate to within 10 percent. What are the upper and lower bounds for these projections? What is the base-case NPV? What are the best-case and worst-case scenarios? (A negative answer should be indicated by a minus sign. Do not round Intermediate calculations. Round your NPV answers to 2 decimal places, e.g., 32.16. Round your other answers to the nearest whole number, e.g. 32.) Scenario Base Best Worst Unit Sales 330 363 297 Answer is complete and correct.…
You are considering a new product launch. The project will cost $900,000, have a 4-year life, and have no salvage value; depreciation is straight-line to zero. Sales are projected at 560 units per year; price per unit will be $19,200, variable cost per unit will be $15,900, and fixed costs will be $950,000 per year. The required return on the project is 12 percent, and the relevant tax rate is 23 percent. a. The unit sales, variable cost, and fixed cost projections given above are probably accurate to within ±10 percent. What are the upper and lower bounds for these projections? What is the base-case NPV? What are the best-case and worst-case scenarios? (A negative amount should be indicated by a minus sign. Do not round intermediate calculations and round your NPV answers to 2 decimal places, e.g., 32.16.) Scenario Unit sales Variable cost per unit Fixed costs Scenario Base-case Best-case Worst-case Upper bound NPV Lower bound units
You are considering a new product launch. The project will cost $1,500,000, have a four- year life, and have no salvage value; depreciation is straight-line to zero. Sales are projected at 160 units per year; price per unit will be $18,000, variable cost per unit will be $10,500, and fixed costs will be $450,000 per year. The required return on the project is 10 percent, and the relevant tax rate is 22 percent. a-1. The unit sales, variable cost, and fixed cost projections given above are probably accurate to within ±10 percent. What are the upper and lower bounds for these projections? What is the base-case NPV? What are the best-case and worst-case scenarios? (Do not round intermediate calculations and round your answers to the nearest whole number, e.g., 32.) a-2. What is the base-case NPV? What are the best-case and worst-case scenarios? (A negative answer should be indicated by a minus sign. Do not round intermediate calculations and round your answers to 2 decimal places, e.g.,…