An R&D lab will receive $250,000 when a proposed contract is signed, a $200,000 progress payment at the end of Year 1, and $400,000 when the work is completed at the end of Year 2. What is the present worth of the contract at 15%? Draw cash flow diagram for this problem.

An R&D lab will receive $250,000 when a proposed contract is signed, a $200,000 progress payment at the end of Year 1, and $400,000 when the work is completed at the end of Year 2. What is the present worth of the contract at 15%? Draw cash flow diagram for this problem.

EBK CFIN

6th Edition

ISBN:9781337671743

Author:BESLEY

Publisher:BESLEY

Chapter9: Capital Budgeting Techniques

Section: Chapter Questions

Problem 15PROB

See similar textbooks

Related questions

Q: A project requires an initial outlay of $100,000 and is expected to generate annual net cash inflows…

A: Net Present Value is the difference between the current value of cash inflow and cash outflow for a…

Q: Project L costs $65,000, its expected cash inflows are $12,000 per year for 9 years, andits WACC is…

A: Year cash flow 0 (65,000.00) 1 12,000.00 2…

Q: n investment project has annual cash inflows of $27,000. The project requires an initial investment…

A: Payback period is the no. of years required to recover the initial amount invested.

Q: Project L costs $46,572.76, its expected cash inflows are $11,000 per year for 8 years, and its WACC…

A: Capital investment refers to all those activities that a business entity undergoes while allocating…

Q: Project L costs $40,000, its expected cash inflows are $9,000 per year for 8 years, and its WACC is…

A: Modified internal rate of return (MIRR) is the rate of return provided by the project. In this…

Q: An IT company receives two new project proposals. Project A will cost $250,000 to develop and is…

A: Given:

Q: Project L costs $40,000, its expected cash inflows are $12,000 per year for 11 years, and its WACC…

A: The payback period is the time taken by the investment to recover the cost of the investment.

Q: Project L costs $50,000, its expected cash inflows are $8,000 per year for 7 years, and its WACC is…

A: Project's Payback Period = Initial Investment / Expected annual cash inflows

Q: Project L costs $70,000, its expected cash inflows are $12,000 per year for 8 years, and its WACC is…

A: Project's MIRR is calculated using excel MIRR function

Q: Elysian Fields, Inc., uses a maximum payback period of 6 years and currently must choose between two…

A: A method of capital budgeting that helps to evaluate the time period a project requires to cover its…

Q: You are considering a project with an initial cost of $7,800. What is the payback period for this…

A: Calculation of Payback Period:Using Excel Spreadsheet:

Q: Project R has annual cash flows of $6,000 for the next 10 years and then $5,000 each year for the…

A: Annual cash flow for 10 years = $6,000 Annual cash flow in following 10 years = $5,000 IRR = 12.92%…

Q: a. Project L requires an initial outlay at t = 0 of $48,817, its expected cash inflows are $10,000…

A: Capital budgeting refers to the evaluation of the profitability of potential investment and projects…

Q: A project has annual cash flows of $6,000 for the next 10 years and then $10,500 each year for the…

A: Present value of annuity is the current value of the future payments that are calculated using the…

Q: An IT company receives two new project proposals. Project A will cost $250,000 to develop and is…

A: Project A Cost = $ 250,000 Annual cash inflow = $50000 Project B Cost = $ 350,000 Annual cash…

Q: Project L costs $40,000, its expected cash inflows are $11,000 per year for 11 years, and its WACC…

A: Project's Payback period = Initial Investment / Annual Cashflow

Q: cost of a project is $50,000 and it generates cash inflows of $20,000, over four years. Calculate…

A: Payback period is the no. of years required to recover the initial amount invested.

Q: Project L costs $65,000, its expected cash inflows are $12,000 per year for 9 years, andits WACC is…

A: Computation of discounted payback as follows: Hence, the discounted payback is 8.02 years.

Q: Project L costs $45,000, its expected cash inflows are $12,000 per year for 9 years, and its WACC is…

A: Given: Annuity = $12,000 Interest rate = 11% Time period = 9 years Present value of outflows =…

Q: Project L costs $70,000, its expected cash inflows are $16,000 per year for 8 years, and its WACC is…

A: Working note:

Q: Project L costs $40,000, its expected cash inflows are $12,000 per year for 7 years, and its WACC is…

A: Payback period is the amount of time taken by the project to recover its initial cash invested.…

Q: Project L costs $45,000, its expected cash inflows are $8,000 per year for 11 years, and its WACC is…

A: Formulas:

Q: Project L costs $59,583.76, its expected cash inflows are $13,000 per year for 10 years, and its…

A: IRR is the rate at which NPV of the project is 0

Q: Project L costs $75,000, its expected cash inflows are $15,000 per year for 12 years, and its WACC…

A: Computation of NPV:

Q: A project has annual cash flows of $8,000 for the next 10 years and then $8,500 each year for the…

A: IRR of the Project is the internal rate of return of the project, This is the rate that equates PV…

Q: Project L costs $65,000, its expected cash inflows are $11,000 per year for 7 years, and its WACC is…

A: Computation of the payback period:

Q: Project L costs $70,000, its expected cash inflows are $11,000 per year for 8 years, and its WACC is…

A: Using excel MIRR function

Q: Project L costs $55,000, its expected cash inflows are $12,000 per year for 8 years, and its WACC is…

A: Here, Cost of Project is $55,000 Expected Annual Cash Inflow is $12,000 Time Period is 8 years WACC…

Q: project has an initial cost of $7,000. The cash inflows are $1,000, $2,600, $3,000, and $4,000 over…

A: The payback period represents the time it would take an investor to reach a breakeven point or…

Q: If a copy center is considering the purchase of a new copy machine with an initial investment cost…

A: Note : As per the Q&A guideline we are required to answer the first question only ,please post…

Q: Cecil company is considering the of a new machine. The machine cost $227,500 and will generate a…

A: Machine cost (C) = $227500 Cash inflow (A) = $35000

Q: A lathe costs $56,000 and is expected to result in net cash inflows of $20,000 at the end of each…

A: Net Present Value(NPV) determines the best suitable investment in order to meet the expectations of…

Q: If a copy center is considering the purchase of a new copy machine with an initial investment cost…

A: Payback period = Initial cost / annual cashflow

Q: Project L costs $65,000, its expected cash inflows are $12,000 per year for 9 years, andits WACC is…

A: The method used to calculate returns assuming that the cost incurred as initial investment in a…

Q: A project costing $6,200 initially should produce cash inflows of $2,860 a year for three years. The…

A: Net present value is the technique used in capital budgeting to evaluate the acceptability of the…

Q: A project is expected to cost $30,000, with the capital due immediately. Four annual cash flows are…

A: Capital budgeting techniques are quantitative approaches that a company adopts while evaluating…

Q: Project L costs $45,000, its expected cash inflows are $15,000 per year for 11 years, and its WACC…

A: The payback period refers to the time required by an investment to cover its initial investment.…

Q: Project L costs $65,000, its expected cash inflows are $12,000 per year for 9 years, andits WACC is…

A: A discount rate at which the net present worth of an investment is equal to zero is term as internal…

Q: Project L costs $55,000, its expected cash inflows are $13,000 per year for 12 years, and its WACC…

A: Net present value(NPV): NPV is the difference between the present value of cash inflows and out…

Q: Stu is working on a bid for a contract. Thus far, he has determined that he will need $218,000 for…

A: Calculation of Operating Cash Flow:To calculate the operating cash flow, it is necessary to…

Q: Project L costs $54,779.63, its expected cash inflows are $13,000 per year for 8 years, and its WACC…

A: IRR is the rate at which NPV is zero

Q: Project L costs $65,000, its expected cash inflows are $8,000 per year for 9 years, and its WACC is…

A: IRR is the rate at which NPV is Zero

Q: Acme, Inc. is considering a four-year project that has an initial outlay or cost of $100,000. The…

A: Unrecovered investment at start of 4th year= Initial cost – Cumulative cash inflow at the end of 3rd…

Q: Project L costs $35,000, its expected cash inflows are $8,000 per year for 8 years, and its WACC is…

A: Given: Initial investment =$35000Annual cash inflows =$8000Life of project =8 yearsWACC =11%Finance…

Q: Project L costs $66,301.01, its expected cash inflows are $14,000 per year for 11 years, and its…

A: Computation of IRR:

Concept explainers

Classification Of Risk

Risk means when there could be a possibility that the returns expected from a particular project or investment may or may not match the investor's expectations. In other words, the uncertainty of an income arising from a source that would either be lower than expected or result in losses in risk exposure of the project. The higher the risk involved, the higher is the return expected by the investor as the investor is exposed to a high level of risk. There are various methods by which different types of risk can be assessed and avoided or mitigated.

Question

Solve the attahment.

An R&D lab will receive $250,000 when a proposed contract is signed,
a $200,000 progress payment at the end of Year 1, and $400,000 when the work is
completed at the end of Year 2. What is the present worth of the contract at 15%?
Draw cash flow diagram for this problem.

Expert Solution

This question has been solved!

Explore an expertly crafted, step-by-step solution for a thorough understanding of key concepts.

This is a popular solution!

SEE SOLUTION Check out a sample Q&A here

Step 1

VIEW

Step 2

VIEW

Step 3

VIEW

Trending now

This is a popular solution!

Step by step

Solved in 3 steps with 2 images

SEE SOLUTION Check out a sample Q&A here

Knowledge Booster

Learn more about

Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, accounting and related others by exploring similar questions and additional content below.

Similar questions

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?
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?
Your company is planning to purchase a new log splitter for is lawn and garden business. The new splitter has an initial investment of $180,000. It is expected to generate $25,000 of annual cash flows, provide incremental cash revenues of $150,000, and incur incremental cash expenses of $100,000 annually. What is the payback period and accounting rate of return (ARR)?
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?
Consolidated Aluminum is considering the purchase of a new machine that will cost $308,000 and provide the following cash flows over the next five years: $88,000, 92,000, $91,000, $72,000, and $71,000. Calculate the IRR for this piece of equipment. For further instructions on internal rate of return in Excel, see Appendix C.
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. For further instructions on internal rate of return in Excel. see Appendix C.
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?
A restaurant is considering the purchase of new tables and chairs for their dining room with an initial investment cost of $515,000, and the restaurant expects an annual net cash flow of $103,000 per year. What is the payback period?
Buena Vision Clinic is considering an investment that requires an outlay of 600,000 and promises a net cash inflow one year from now of 810,000. Assume the cost of capital is 10 percent. Required: 1. Break the 810,000 future cash inflow into three components: a. The return of the original investment b. The cost of capital c. The profit earned on the investment 2. Now, compute the present value of the profit earned on the investment. 3. Compute the NPV of the investment. Compare this with the present value of the profit computed in Requirement 2. What does this tell you about the meaning of NPV?
There are two projects under consideration by the Rainbow factory. Each of the projects will require an initial investment of $35,000 and is expected to generate the following cash flows: If the discount rate is 12%, compute the NPV of each project.
Markoff Products is considering two competing projects, but only one will be selected. Project A requires an initial investment of $42,000 and is expected to generate future cash flows of $6,000 for each of the next 50 years. Project B requires an initial investment of $210,000 and will generate $30,000 for each of the next 10 years. If Markoff requires a payback of 8 years or less, which project should it select based on payback periods?
Project Y cost $8,000 and will generate net cash inflows of $1,500 in year one, $2,000 in year two, $2,500 in year three, $3,000 in year four and $2,000 in year five. What is the NPV using 8% as the discount rate?