Net Present Value Essay
Calculate the present value of the following cash flows, rounding to the nearest dollar:
a. A single cash inflow of $12,000 in five years, discounted at a 12% rate of return.
b. An annual receipt of $16,000 over the next 12 years, discounted at a 14% rate of return.
c. A single receipt of $15,000 at the end of Year 1 followed by a single receipt of $10,000 at the end of Year 3. The company has a 10% rate of return.
d. An annual receipt of $8,000 for three years followed by a single receipt of $10,000 at the end of Year 4. The company has a 16% rate of return.
2. Cash flow calculations and net present value
On January 2, 20X1, Bruce Greene invested $10,000 in the stock market and purchased …show more content…
Cost of boat $500,000
Service life 10 summer seasons
Disposal value at the end of 10 seasons $100,000
Capacity per trip 300 passengers
Fixed operating costs per season (including straightline depreciation) $160,000
Variable operating costs per trip $1,000
Ticket price $5 per passenger
All operating costs, except depreciation, require cash outlays. On the basis of similar operations in other parts of the country, management anticipates that each trip will be sold out and that 120,000 passengers will be carried each season. Ignore income taxes.
Instructions:
By using the netpresentvalue method, determine whether STL Entertainment should acquire the boat. Assume a 14% desired return on all investments round calculations to the nearest dollar.
5. Equipment replacement decision
Columbia Enterprises is studying the replacement of some equipment that originally cost $74,000. The equipment is expected to provide six more years of service if $8,700 of major repairs are performed in two years. Annual cash operating costs total $27,200. Columbia can sell the equipment now for $36,000; the estimated residual value in six years is $5,000.
New equipment is available that will reduce annual cash operating costs to $21,000. The equipment costs $103,000, has a service life of six years, and has an estimated…

Net Present Value Calculation: A Questionnaire
370 Words  2 Pages1. This first question is a net present value calculation. The future cash flows must be discounted, because of the effects of interest and inflation. Those two factors reduce the value of cash flows in the future, so that money received or paid in the future is not worth as much as the same dollar amount paid today. In this example, there is a project, and the cash flows associated with the project need to be discounted. If the final value, the net present value (NPV) is greater than zero, the company…

Assignment: Net Present Value and Capital
2375 Words  10 Pages00,000 by making a down payment of Rs.1,50,000 and remainder in equal instalments of Rs. 1,50,000 for six years. What is the rate of interest to the firm? 2. a.Explain the mechanism of calculating the present value of cash flows..What is annuity due? How can you calculate the present and future values of an annuity due? Illustrate b.”The increase in the riskpremium of all stocks,irrespective of their beta is the same when risk aversion increases” Comment with practical examples 3. a.How leverage…

Essay on Net Present Value and Percent
2231 Words  9 PagesFin 3320 Practice Questions1 – Total Course 1. Your wealthy uncle has set up a special account that will give you $500,000 on your 35th birthday. Assuming you are age 21 (thus 14 years from receiving this), what is the present value of this gift if the appropriate discount rate is 8.0%? (Ch5) a. $170,231 b. $282,449 c. $442,619 d. $191,206 e. $734,664 2. You need $10,900 for the down payment on a new car. You presently have $5,000 in savings for which you expect to earn 6% (annual rate, compounded…

Net Present Value and Software Project Management
1655 Words  7 PagesEconomical assessment 4. Objectives assessment 5. Risk assessment 8. The is the difference between the total cost and the total income of a project over its lifetime. This includes both direct as well as indirect costs. 1. Payback 2. Net profit 3. Net present value 4. Cash flow 5. All of the above 4 INF3708/201 The table below gives the estimated cash flow for three different projects (in rands R). use the table to answer question 9 – 19. Year 0 1 2 3 4 5 6 Project 1  R 175 000 + R 15…

Net Present Value of TMobile's Discount Rate
1413 Words  6 PagesPart I: The formula for net present value is as follows: INCLUDEPICTURE "http://i.investopedia.com/inv/dictionary/terms/NPV.gif" * MERGEFORMATINET Â Source: Investopedia (2012) The net present value of this project if TMobile's discount rate is 4% is therefore as follows: Year 0 1 2 3 4 5 CF 3219000 350000 939000 1122000 500000 400000 PV 3219000 336538.5 868158.3 997453.9 427402.1 328770.8 NPV 260676 d 4% Based on this…

Net Present Value Calculation for PowerCo Project
478 Words  2 PagesThere are costs for the first two years and then there are net positive cash flows for the subsequent ten years. A net present value calculation will be used in order to determine if the company should undertake this project or not. The present value calculations will be done according to this formula: INCLUDEPICTURE "http://i.investopedia.com/inv/dictionary/terms/NPV.gif" * MERGEFORMATINET Source: Investopedia (2012) The present value of the costs is as follows: Year 1 2 Cash Flow 25…

Essay on Net Present Value and Capacity Planning
1269 Words  6 Pagesa 30% per year discount rate. Volatility is 20%. c. How much is Project Sable worth if you have access to both phases and can wait to decide whether or not to invest in phase 2? S = PV(Revenue) X = PV(Investment) A=S/X B = SQRT(T) * sigma Options Value of 2nd Phase = 140/(1+0.3)3 = 63.72 = 100/(1+0.3)2 = 59.17 =1.07 =sqrt(2)*.20 = 0.28 14.6% of S =9.30 Total = 7.6 + 9.30 = 1.70 Question 2: Suppose that you are hired by a company that is evaluating the profitability of a new product. The…

The Caledonia Project: An Analysis of Net Present Value Calculation
503 Words  3 Pagesbe analyzed with a net present value calculation. The future cash flows will be calculated and then discounted to present day, then tabulated so that the net present value of the project is determined. This NPV will allow management to make a decision with respect to whether or not the project should be undertaken or not. Caledonia should focus on free cash flows for the project rather than accounting profit. The reason for this is that the free cash flows are the actual value that is being added…

The Net Present Value Analysis: A Study Guide
363 Words  2 PagesPart I: A. The present value of my future bank account is: 15,000 / (1+.07) = $14,019. If the rate is only 4%, then the present value of my future bank account is 15,000 / (1.04) = $14,423. B. The present value of Account A is 6500 / 1.06 = $6132.08. The present value of Account B is 12,600 / (1.06)^2 = $11,213.96. C. The net present value of the gold mine is as follows: Year 0 1 2 3 Cash Flow Â 49 61 85 PV 45.79439 53.27976 69.38532 NPV 168.4595 D 7% This is based…

Essay on Net Present Value and Moderate Keywords
10098 Words  41 PagesLongTerm Capacity Decisions Difficulty: Moderate Keywords: capacity requirement, evaluate alternatives, cash flow 69. Use the information in Table 6.5. What is the pretax cash flow (net present value) for alternative #1 compared to the base case of doing nothing for the next five years? a. Negative pretax cash flow b. More than $0 but less than $40,000 c. More than $40,000 but less than $80,000 d. More than $80,000…
More about Net Present Value Essay

Net Present Value Calculation: A Questionnaire
370 Words  2 Pages 
Assignment: Net Present Value and Capital
2375 Words  10 Pages 
Essay on Net Present Value and Percent
2231 Words  9 Pages 
Net Present Value and Software Project Management
1655 Words  7 Pages 
Net Present Value of TMobile's Discount Rate
1413 Words  6 Pages 
Net Present Value Calculation for PowerCo Project
478 Words  2 Pages 
Essay on Net Present Value and Capacity Planning
1269 Words  6 Pages 
The Caledonia Project: An Analysis of Net Present Value Calculation
503 Words  3 Pages 
The Net Present Value Analysis: A Study Guide
363 Words  2 Pages 
Essay on Net Present Value and Moderate Keywords
10098 Words  41 Pages