Can I get the answers to 10.2-10.4 10.1 Net present value: Riggs Corp. management is planning to spend $650,000 on a newmarketing campaign. They believe that this action will result in additional cash flows of $325,000over the next three years. If the discount rate is 17.5 percent, what is the NPV on this project?10.2 Net present value: Kingston, Inc. management is considering purchasing a new machine ata cost of $4,133,250. They expect this equipment to produce cash flows of $814,322, $863,275,$937,250, $1,017,112, $1,212,960, and $1,225,000 over the next six years. If the appropriatediscount rate is 15 percent, what is the NPV of this investment?10.3 Net present value: Crescent Industries management is planning to replace some existingmachinery in its plant. The cost of the new equipment and the resulting cash flows are shown inthe accompanying table. If the firm uses an 18 percent discount rate for projects like this, shouldmanagement go ahead with the project?YearCash Flow-$3,300,0001875,1232966,22231,145,00041,250,39951,504,44510.4 Net present value: Management of Franklin Mints, a confectioner, is considering purchasinga new jelly bean-making machine at a cost of $312,500. They project that the cash flows from thisinvestment will be $121,450 for the next seven years. If the appropriate discount rate is 14 percent,what is the NPV for the project?

Details of 10.2: Cash Flows are as follows: Year Cash Flows 0 -$4,133,250 1 $814,322 2…

Answered: 10.2 Net present value: Kingston, Inc.…

Managerial Accounting

15th Edition

ISBN:9781337912020

Author:Carl Warren, Ph.d. Cma William B. Tayler

Publisher:Carl Warren, Ph.d. Cma William B. Tayler

Chapter12: Capital Investment Analysis

Section: Chapter Questions

Problem 15E

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Gina Ripley, president of Dearing Company, is considering the purchase of a computer-aided manufacturing system. The annual net cash benefits and savings associated with the system are described as follows: The system will cost 9,000,000 and last 10 years. The companys cost of capital is 12 percent. Required: 1. Calculate the payback period for the system. Assume that the company has a policy of only accepting projects with a payback of five years or less. Would the system be acquired? 2. Calculate the NPV and IRR for the project. Should the system be purchasedeven if it does not meet the payback criterion? 3. The project manager reviewed the projected cash flows and pointed out that two items had been missed. First, the system would have a salvage value, net of any tax effects, of 1,000,000 at the end of 10 years. Second, the increased quality and delivery performance would allow the company to increase its market share by 20 percent. This would produce an additional annual net benefit of 300,000. Recalculate the payback period, NPV, and IRR given this new information. (For the IRR computation, initially ignore salvage value.) Does the decision change? Suppose that the salvage value is only half what is projected. Does this make a difference in the outcome? Does salvage value have any real bearing on the companys decision?
The Ulmer Uranium Company is deciding whether or not to open a strip mine whose net cost is $4.4 million. Net cash inflows are expected to be $27.7 million, all coming at the end of Year 1. The land must be returned to its natural state at a cost of $25 million, payable at the end of Year 2. Plot the project’s NPV profile. Should the project be accepted if r = 8%? If r = 14%? Explain your reasoning. Can you think of some other capital budgeting situations in which negative cash flows during or at the end of the project’s life might lead to multiple IRRs? What is the project’s MIRR at r = 8%? At r = 14%? Does the MIRR method lead to the same accept-reject decision as the NPV method?
Redbird Company is considering a project with an initial investment of $265,000 in new equipment that will yield annual net cash flows of $45,800 each year over its seven-year life. The companys minimum required rate of return is 8%. What is the internal rate of return? Should Redbird accept the project based on IRR?

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