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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?Project S has a cost of $10,000 and is expected to produce benefits (cash flows) of $3,000 per year for 5 years. Project L costs $25,000 and is expected to produce cash flows of $7,400 per year for 5 years. Calculate the two projects’ NPVs, IRRs, MIRRs, and PIs, assuming a cost of capital of 12%. Which project would be selected, assuming they are mutually exclusive, using each ranking method? Which should actually be selected?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?
- Jasmine Manufacturing is considering a project that will require an initial investment of $52,000 and is expected to generate future cash flows of $10,000 for years 1 through 3, $8,000 for years 4 and 5, and $2,000 for years 6 through 10. What is the payback period for this project?Falkland, Inc., is considering the purchase of a patent that has a cost of $50,000 and an estimated revenue producing life of 4 years. Falkland has a cost of capital of 8%. The patent is expected to generate the following amounts of annual income and cash flows: A. What is the NPV of the investment? B. What happens if the required rate of return increases?You are also considering another project that has a physical life of 3 years—that is, the machinery will be totally worn out after 3 years. However, if the project were terminated prior to the end of 3 years, the machinery would have a positive salvage value. Here are the project’s estimated cash flows: Using the 10% cost of capital, what is the project’s NPV if it is operated for the full 3 years? Would the NPV change if the company planned to terminate the project at the end of Year 2? At the end of Year 1? What is the project’s optimal (economic) life?
- Mason, Inc., is considering the purchase of a patent that has a cost of $85000 and an estimated revenue producing lite of 4 years. Mason has a required rate of return that is 12% and a cost of capital of 11%. The patent is expected to generate the following amounts of annual income and cash flows: A. What is the NPV of the investment? B. What happens if the required rate of return increases?You are considering the following project. What is the NPV of the project? WACC of the project: 0.10 Revenue growth rate: 0.05 Tax rate: 0.40 Revenue for year 1: 13,000 Fixed costs for year 1: 3,000 variable costs (% of revenue): 0.30 project life: 3 years Economic life of equipment: 3 years Cost of equipment: 20,000 Salvage value of equipment: 4,000 Initial investment in net working capital: 2,000You must decide firm which of the proposed projects should be accepted for the upcoming year since only $6 million is available. Which projects should be accepted? Project Cost (millions) NPV (millions) A 3.25 0.80 B 1.75 0.52 C 4.5 0.69 D 3.75 0.95 E 1.25 0.25 F 0.50 0.25
- I need a detailed explanation to solve this problem. A company has the following mutually exclusive projects. Year Project-A Project-B 0 $26,000 $29,000 1 $15,000 $16,000 2 $11,500 $10,000 3 $3,500 $11,500 a)- Calculate the payback period for each project. - How many years for Project A - How many years for Project B b)-If the company's payback period is two years, which of the project should you chose? * Project A or Project B * Both Projects or Neither Projects c)- If the discount rate is 13%, what is the NPV for each Project? d) If the discount rate is 13%, which project should the company chose? * Project A or Project B * Both Project s or Neither ProjectNOTE: Provide a format and show your work (example: N = 6, PV = XXX, I = X%, etc.) 1. As the project manager at Jelz, Inc., you are considering a project that will cost $4,276 and produce cash flows of $1,050 in year 1, $1,250 in year 2, $1,250 in year 3, and $1,550 in year 4. Find the rate of return for the project and determine if you should take the project if your required rate of return is 7.15%. (This is a 2 part question, make sure you answer both parts. Numerical answers should be rounded to 2 decimal places.) 2. You are looking to buy a car. You can afford $550 in monthly payments for five years. In addition to the loan, you can make a $6,000 down payment. If interest rates are 7.25 percent APR, what price of car can you afford (loan plus down payment)? (Do not round intermediate calculations and round your final answer to 2 decimal places.)Tiffany Co. is analyzing two projects for the future. Assume that only one project can be selected. Project Y Project X Cost of machine P680,000 P600,000 Net cash flow: Year 1 240,000 40,000 Year 2 240,000 260,000 Year 3 240,000 260,000 Year 4 0 200,000 If the company is using the payback period method and it requires a payback of three years or less, which project should be selected? Group of answer choices Project Y. Project Y because it has a lower initial investment. Both X and Y are acceptable projects. Project X. Neither X nor Y is an acceptable project.
