Compute the NPV for Campbell Manufacturing, assuming a discount rate of 12%. If required, round all present value calculations to the nearest dollar. Use the minus sign to indicate a negative NPV. $fill in the blank 1 Should the company buy the new welding system? (Yes/No)
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Each of the following scenarios is independent. Assume that all cash flows are after-tax cash flows.
- Campbell Manufacturing is considering the purchase of a new welding system. The cash benefits will be $480,000 per year. The system costs $1,550,000 and will last 10 years.
- Evee Cardenas is interested in investing in a women's specialty shop. The cost of the investment is $180,000. She estimates that the return from owning her own shop will be $55,000 per year. She estimates that the shop will have a useful life of 6 years.
- Barker Company calculated the NPV of a project and found it to be $63,900. The project's life was estimated to be 8 years. The required
rate of return used for the NPV calculation was 10%. The project was expected to produce annual after-tax cash flows of $135,000.
Required:
1. Compute the NPV for Campbell Manufacturing, assuming a discount rate of 12%. If required, round all present value calculations to the nearest dollar. Use the minus sign to indicate a negative NPV.
$fill in the blank 1
Should the company buy the new welding system?
(Yes/No)
2. Conceptual Connection: Assuming a required rate of return of 8%, calculate the NPV for Evee Cardenas' investment. Round to the nearest dollar. If required, round all present value calculations to the nearest dollar. Use the minus sign to indicate a negative NPV.
$fill in the blank 3
Should she invest?
(Yes / no)
What if the estimated return was $135,000 per year? Calculate the new NPV for Evee Cardenas' investment. Would this affect the decision? What does this tell you about your analysis? Round to the nearest dollar.
$fill in the blank 5
The shop (should now/should not now) be purchased. This reveals that the decision to accept or reject in this case is affected by differences in estimated (cash flow/investment/returns)
3. What was the required investment for Barker Company's project? Round to the nearest dollar. If required, round all present value calculations to the nearest dollar.
$fill in the blank 8
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