What is the NPV, payback period, and internal rate of return for Project A.With the initial cost of 1250000.000 Project ACash FlowYear 1250,000Year 2250,000Year 3250,000Year 4250,000Year 5400,000Year 6400,000Year 7400,000Year 8400,0004%Cost of Capital

Capital budgeting is the process by which investors determine the value of a potential investment…

Answered: Project A Cash Flow Year 1 250,000 Year…

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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Consider the two projects in the following table: Year 0123 14.65% O 13,70 % What is the crossover point for the two projects? 14.95% Expected Net Cash Flow 13.25% Project A -$22,000 $15,000 $15,000 $15,000 Project B -$20,800 $14,100 $14,100 $14,100
Project 20 yearMachinery cost 200MDeprecated over 20 yearBV 20MWorking Capital 25MCompany spend 20M in project servey and feasibility study Anuual revenue 40MAnnual expens 10MMV=30MTax 20% a. Calculate net initial investment b. Calculate net operating cash flow c. Calculate net salvage value. d. Calculate internal rate of return (or approx. IRR) for the project. e. Is the project financially viable? Justify
Project: A B Initial cost R100 000 R115 000 R90 000 Expected life 5 years 5 years 4 years Scrap value R5 000 R7 500 R4 000 Cash-inflows R R End year 1 40 000 50 000 27 500 35 000 35 000 32 500 3 32 500 25 000 47 500 4 30 000 25 000 50 000 27 500 25 000 The company estimates its cost of capital is 18%. Required: (a) Calculate the payback period for Project A. O 2 years 8 months or 2.8 years O 3 years 2 months or 3.2 years O 2 years 6 months or 2.6 years O 4 years 2 months or 4.2 years O None of the above
Year 01234 Proj Y Proj Z ($420,000) ($420,000) 400,000 182,000 185,000 156,000 146,000 175,000 The projects provide a necessary service, so whichever one is selected is expected to be repeated into the foreseeable future. Both projects have an 11% cost of capital. 6. What is each project's initial NPV without replication? 7. What is each project's equivalent annual annuity? 8. Now apply the replacement chain approach to determine the shorter projects' extended NPV. Which project should be chosen? 9. Now assume that the cost to replicate Project Y in 2 years will increase to $600,000 because of inflationary pressures. How should the analysis be handled now, and which project should be chosen?
4 You are considering the following investment activity. The facts are the following: Required investment 300,000.00 Discount Rate 9% Life of project 7.00 Years Net income for the project Sales 140,000.00 Expenses Material 25,000.00 Labor 35,000.00 Overhead 15,000.00 Total Expenses 75,000.00 Net Income 65,000.00 What is the NPV of this investment? What is the IRR of this investment? Would you fund this project? Show your work below Year 0 1 2 3 4 5 6 7
Calculate the payback period for each project Year Project A ($) Project B ($) Project C ($) 0 (Investment) -2,000 -$10,000 -$5,000 1 -2,000 -6,000 -2,000 2 800 4,000 5,000 3 600 3,000 5,000 4 600 2,000 5,000 5 400 2,000 2,000
Year 0 $10,000.00 1 $ 3,000.00 Project A Cash Flow Project B Cash Flow $11,000.00 $5,000.00 2 $ 4,000.00 $ 4,000.00 3 $ 5,000.00 $ 4,000.00 4 $3,000.00 $ 3,000.00 Assuming that the relevant cost of capital for both projects is 10%, you should be able to determine the net present value (NPV) and the internal rate of return (IRR) for both project. Assume now that the firm has capital rationing, but knows that its true reinvestment rate is 21%, while its cost of capital is 10 percent. Given this information, determine the modified net present value (MNPV) for Project A. $3,811.27 O $3,622.02 O $4,280.07 O $4,162.90 O $4,404.83
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Year Investment A 2016 $400.000 2017 $400.000 2018 $400.000 2019 $400.000 2020 $400.000 Investment B $100.000 $100.000 $100.000 $1.000.000 $1.000.000 calculate the Npv of both project
Fixed capital investment 320 000 € working capital 35 000 € scrap value 30 000 € for the project with 6 years of service life and net cash flow given in the table, a) Calculate average rate of return (relative to NNA) b) Calculate net payback period c) Calculate net present value (r = 0.17) d) Calculate the discount rate (r *) that makes the net present value zero. *NCF: Net Cash Flow Year 1 2 3 4 5 6 NCF (€) 120000 130000 150000 170000 155000 140000
Year Project A Project B 2. (200,000) (200,000) 80,000 100,000 80,000 100,000 3 80,000 100,000 4. 80,000 a. If the opportunity cost of capital is 11%, which of these projects is worth pursuing? Find the NPV of both projects.
Practical Question The total investment required for two projects are estimated at OMR100, 000. The cash flows expected from the two projects for the first four years are explained in the table below. Year Project A Project B Year 1 15,000 15,000 Year 2 28,500 40,000 Year 3 40,000 21,500 Year 4 50,000 35,000 Use the above information and advise which project to select based on payback period method 11 直 hp

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Project A Cash Flow Year 1 250,000 Year 2 250,000 Year 3 250,000 Year 4 250,000 Year 5 400,000 Year 6 400,000 Year 7 400,000 Year 8 400,000 4% Cost of Capital