Unit 4ip for Financial Management

Unlike the previous two cash flows where we considered them based on the direct impact they bring, the super project’s share of the building and agglomerator capacity must not be considered in our cash flow for the following reasons:

What is the net present value of this follow-up investment and the combined base and expansion investments?

3. Estimate the project’s NPV. Would you recommend that Tucker Hansson proceed with the investment?

effective cost of { [ (1 + .15/365)^365 ] - 1 } * 100 = 16.18% per year.

Webmasters.com has developed a powerful new server that would be used for corporations’ Internet activities. It would cost $10 million at Year 0 to buy the equipment necessary to manufacture the server. The project would require net working capital at the beginning of each year in an amount equal to 10% of the year's projected sales; for example, NWC0 = 10%(Sales1). The servers would sell for $24,000 per unit, and Webmasters believes that variable costs would amount to $17,500 per unit. After Year 1, the sales price and variable costs will increase at the inflation rate of 3%. The company’s

The company should accept this project. The project payback period is between 2 to 3 years.

9. (Ignore income taxes in this problem.) The Crawford Company is pondering an investment in a machine that

Financial risks include the short payback period. A 3-year payback period would not allow Hansson the opportunity to breakeven. With a negative NPV in the first 3 years Hansson’s decision to invest in the project would be based on his ability to negotiate a longer contract time. The Net Present Value (NPV) would have to be examined in tandem with the other non-financial variables.

The ARR for the project is 12.8% this is less than required 15%. Therefore the project should be rejected.

A target payback period will be set by the company and the proposals that recover their initial cost within this time will be acceptable. If a comparison is made between two or more options then the choice will be project with the fastest payback.

is only three years. Second; the payback period for the project A is 3 years and for G

Wheels Industries is deeming a 3 year project expansion for Project A. (Argosy, 2012)The project needs an initial outlay of $1.5 million. The project will make use of the method of straight-line depreciation. The plan has no value for salvage. It is approximated that the project will produce additional incomes of $1.2 million for each year prior to tax and has further yearly costs of $600,000. The Marginal rate of Tax is 35%.

1. Initial investment of $10 million that will be the cost to build the new factory.

This analysis will determine whether or not the project is worth pursuing using a net present value (NPV) approach.

However, if NPV is negative, the project should probably be rejected because cash flows will also be negative.