Alternative 1 Alternative 2 Capital investment $4,500 $6,000 Annual revenues $1,600 $1,850 Annual expenses Estimated market $400 $800 $500 $1,200 value Useful life 8 years 10 years
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A: Information Provided: Cash Inflows = $45000 Cost of capital = 14% Initial Investment = $(309,600)
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A: Initial investment (I) = $11700 CF1 = $3420 CF2 = $4320 CF3 = $1660 CF4 = 0 CF5 = $1140
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Consider these two alternatives. Solve, a. Suppose that the capital investment of Alternative 1 is known with certainty. By how much would the estimate of capital investment for Alternative 2 have to vary so that the initial decision based on these data would be reversed? The annual MARR is 15% per year. b. Determine the life of Alternative 1 for which the AWs are equal.
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- QUESTION 2 (20) INFORMATION:Vista Limited intends purchasing a new machine and has a choice between the following two machines:Equipment A Equipment BInitial cost R220 000 R240 000Expected useful life 5 years 5 yearsScrap value Nil NilExpected net cash inflows: R REnd of:Year 1 55 000 70 000Year 2 60 000 70 000Year 3 62 000 70 000Year 4 60 000 70 000Year 5 70 000 70 000The company estimates that its cost of capital is 12%.Required:2.1 Calculate the Payback Period of both equipment. (Answers must be expressed in years, months and days). (4)2.2 Calculate the Accounting Rate of Return (on initial investment) for both equipment A and B. (Answers must be expressed to 2 decimal places). (5)2.3 Calculate the Net Present Value of each equipment. (Round off amounts to the nearest Rand. (6)2.4 Calculate the Internal Rate of Return of Equipment B. (5)A4 9a We find the following information on NPNG (No-Pain-No-Gain) Inc.: A4 9a EBIT = $2,000,000Depreciation = $250,000Change in net working capital = $100,000Net capital spending = $300,000 These numbers are projected to increase at the following supernormal rates for the next three years, and 5% after the third year for the foreseeable future: EBIT: 20%Depreciation: 10%Change in net working capital: 15%Net capital spending: 10% The firm’s tax rate is 35%, and it has 1,000,000 outstanding shares and $8,000,000 in debt. We have estimated the WACC to be 15%. a. Calculate the EBIT, Depreciation, Changes in NWC, and net capital spending for the next four years.Question 4 Below is the information for an anonymous company. Initial Investment $1,680,000 Usuefull life 10 years Salvage Value $140,000 Annual Net Income Generated $164,640 Cost of Capital 15%. Please solve for the payback period Accounting Rate of Return And complete the attached table with the correct answers.
- Q.2 A piece of construction equipment costs $325,000. It will be depreciated as Modified Accelerated Cost Recovery System (MACRS) 7-year property, and the firm's tax rate is 30%. The equipment generates $80,000 in net revenue per year. The after-tax cash flow in Year 3 will be $______.Question 2 Sunshine Corporation is reviewing an investment proposal. The initial cost of the investment isR52 500. The estimated cash flows and net profit for each year are presented in the schedulebelow. All cash flows are assumed to take place at the end of the year. year Net cash flows Net profit R20 000 R2 500 R17 500 R3 500 R15 000 R4 500 R12 500 R5 500 R10 000 R6 500 The cost of capital is 12%. Required:Calculate the following:1. Payback Period 2. Net Present value 3. Accounting rate of returnProblem 4–4 Redlands Inc. made the following investments on January 1, 2020, its first year of business: Item Cost Expected Life Cost Allocation Warehouse $100 20 years Straight-line Machine 60 10 years Double-declining Patent 20 5 years Straight-line Invest in stock* 10 Indefinite Not applicable * Rancho’s stock had a fair (market) values of $8 and $7 on December 31, 2020 and December 31, 2021, respectively. Required (A): 1. Present the depreciation, amortization, and losses on the 2020 income statements. 2. Report the book values of the long-term assets on the December 31, 2020 balance sheet. Required (B): 1. Compute the gain or loss on the sale of the warehouse if Redlands sold it for $111 on January 1, 2021. 2. Compute the impairment loss on the machine if Redlands determined it had a fair value of $45 on…
- answer is 4.3 years Please show your solution MANUALLY. don't use excel or financial calculator. Avalon Inc. is considering a new investment. The initial cost of the machinery is $184,000. Avalon expects the machinery to have a five-year useful life, with a $10,000 salvage value. Annual depreciation expense is computed as $34,800. Annual before-tax operating cash inflows are $67,000. Assume an effective tax rate of 30% and that all cash flows occur evenly throughout the year. Management has set a minimum required return of 12% for similar investments. Compute the discounted payback period in years for the potential investment.D4) Finance Cda leased plant over five years. Annual payments were £x in arrears with interest rates at 5%. Licensing fees to operate this plant cost GHI £y. Calculate the Right-of Use value of this asset in GHI’s accountsA4 9b A4 9a We find the following information on NPNG (No-Pain-No-Gain) Inc.: EBIT = $2,000,000Depreciation = $250,000Change in net working capital = $100,000Net capital spending = $300,000 These numbers are projected to increase at the following supernormal rates for the next three years, and 5% after the third year for the foreseeable future: EBIT: 20%Depreciation: 10%Change in net working capital: 15%Net capital spending: 10% The firm’s tax rate is 35%, and it has 1,000,000 outstanding shares and $8,000,000 in debt. We have estimated the WACC to be 15%. b. Calculate the CFA* for each of the next four years, using the formula CFA* = EBIT(1 – T) + Depr – ΔNWC – NCS.
- MACHINE A MACHINE B INITIAL COST R100 000 R110 000 EXPECTED ECONOMIC LIFE 5 YEARS 5 YEARS EXPECTED DISPOSAL/RESIDUAL VALUE R10 000 EXPECTED NET CASH INFLOWS R R END OF: YEAR 1 34 000 33 000 YEAR 2 27 000 33 000 YEAR 3 32 000 33 000 YEAR 4 30 000 33 000 YEAR 5 26 000 33 000 DEPRECIATION PER YEAR 18 000 22 000 COMPANY ESTIMATES COST CAPITAL = 14% 1) Calculate the payback period for Machine A and B (answers must be expressed in years, monthsand days).B5. Garnette Corp is considering the purchase of a new machine that will cost $342,000 and provide the following cash flows over the next five years: $99,000, $88,000, $92,000, $87,000, and $72,000. Calculate the IRR for this piece of equipment. NOTE: Enter amounts rounded to two decimals (e.g., 78.76 or 40.00).Problem 2 ABM Enterprise would like to evaluate/analyze an investment proposal.Given the following:Investment amount - 450,000 (2022)Dividends / Revenue stream - 100,000 for the first year and an interval of 5,000 for thesucceeding yearsDiscount rate - 14% a. NPV for the perio 2023 through 2029;b. Total NPV using manual computation;c. Total NPV using the Excel function; andd. IRR rate.