Problem 1:Consider the following cash flows and assume i = 10% for all analyses purposes:Project Cash FlowsAD-$2,500-$7,000-$5,000-$5,0001$650-$2,500-$2,000-$5002$650-$2,000-$2,000-$500$650-$1,500-$2,000$4,0004$600-$1,500-$2,000$3,0005$600-$1,500-$2,000$3,000$600-$1,500-$2,000$2,0007$300-$2,000$3,0008$300a) Compute the project balances for Projects A and D, as a function of project yearb) Compute the future worth values for Projects A and D at the end of service life.c) Suppose that Projects B and C are mutually exclusive. Assume also that the requiredservice period is eight years and that the company is considering leasing comparableequipment that has an annual lease expense of $3,000 for the remaining years of therequired service period for both projects. Which project is the better choice?

Businesses apply capital budgeting, a financial procedure, to assess and choose long-term investment…

Answered: Consider the following cash flows and…

Entrepreneurial Finance

6th Edition

ISBN:9781337635653

Author:Leach

Publisher:Leach

Chapter14: Security Structures And Determining Enterprise Values

Section: Chapter Questions

Problem 8EP

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Assume San Lucas Corporation in MAD 26-1 assigns the following probabilities to the estimated annual net cash flows: a. Compute the expected value of the annual net cash flows. b. Determine the expected net present value of the equipment, assuming a desired rate of return of 10% and the expected annual net cash flows computed in part (a). Use the present value tables (Exhibits 2 and 5) provided in the chapter in determining your answer. c. Based on your results in parts (a) and (b), should San Lucas Corporation invest in the equipment?
Xander Inc. has prepared the following sensitivity analysis: Line Item Description Amount Amount Amount Estimated Annual Net Cash Flow $500,000 $600,000 $700,000 Present value of annual net cash flows (× 4.487) $2,243,500 $2,692,200 $3,140,900 Present value of residual value 50,000 50,000 50,000 Total present value $2,293,500 $2,742,200 $3,190,900 Amount to be invested (3,000,000) (3,000,000) (3,000,000) Net present value $(706,500) $(257,800) $190,900 In addition, it has assigned the following likelihoods to the three possible annual net cash flows: $500,000, 70%; $600,000, 20%; and $700,000, 10%. Based on an expected value analysis, which of the following statements is accurate? a. The expected value of the annual net cash flow is $540,000, and the project should be accepted. b. The expected value of the annual net cash flow is $660,000, and the project should be accepted. c. The expected value of the annual net cash flow is $660,000, and the project…
Project A has the following information: Year 0 1 2 3 4 5 Initial investment outlay 125,000 Cash inflows 75,000 80,000 95,000 95,000 86,250 Personnel expenses 22,500 22,500 22,500 22,500 22,500 Material expesnes 15,000 20,000 22,500 22,500 22,500 Maintenance expenses 2,500 2,500 5,000 8,750 10,000 Other cash outflows 3,750 3,750 3,750 5,000 5,625 Liquidation value 12,500 Project B has the following information: Year 0 1 2 3 4 5 Initial investment outlay 225,000 Cash inflows 155,000 140,000 108,750 93,750 125,000 Personnel expenses 27,500 27,500 27,500 27,500 27,500 Material expenses 25,000 22,500 22,500 22,500 24,000 Maintenance expesnses 8,750 11,250 17,500 15,000 14,000 Other cash outflows 6,250 3,750 3,750 3,750 4,000 Liquidation value 15,000 The Discount Rate is 8%Assess the relative profitability of the two options using the following methods:(i) The Annuity Method(ii) The Net…
ind the IRR for the following cash flows assuming a WACC of 10%. YR CF 0 -15,000 1 6,000 2 4,000 3 2,000 4 3,000 5 2,000
23. Simms Corp. is considering a project that has the following cash flow data. The project's IRR is_______ %. Show 2 decimals in your answer. Year 0 1 2 3 Cash Flows -$1,000 $380 $475 $450
Company Express S. A. asks you to construct cash flows for following three (3) investment projects, containing following information:PROJECT 1a. Sales (in ThCh$):- Year 1: 90,000- Year 2: 55,000- Year 3: 75,000- Year 4: 190,000b. Cost of sales is estimated at 53% of sales.c. Depreciation for year is ThCh$ 15,000 per period (period 1 to 3). In year 4 there is a sale of machinery that results in a gain on sale of non-current assets of ThCh$ 9,800. Total depreciation for year 4 is ThCh$ 12,500.d. Administrative expenses are equivalent to 17% of sales.e. In period 0 there is an investment of ThCh$ 58,000.f. There is credit financing of ThCh$ 32,000 which is amortized in equal parts of ThCh$ 8,000 per period with a financial expense of ThCh$ 3,700 per period.g. There is an investment in working capital of ThCh$ 24,000 in period 0, which is recovered in period 4.h. In period 4 there is an investment in land of ThCh$ 40,000.i. Income tax rate is 17%. Calculate: cash flow per period. Please…
Find the NPV for the following cash flows assuming a WACC of 10%. YR CF 0 -15,000 1 6,000 2 4,000 3 2,000 4 3,000 5 2,000
Anderson Systems is considering a project that has the following cash flow and WACC data. The project's NPV is $___________. Enter two decimals. WACC = 9% Year 0 1 2 3 Cash Flows -$1,000 $500 $500 500
For the cash flows shown, the correct equation for FW2 using the ROIC method at the reinvestment rate of 20% per year is:a. [10,000(1+ i'' ) + 6000](1.20) - 8000b. [10,000(1.20) + 6000(1+i'' )](1.20) - 8000c. [10,000(1.20) + 6000](1.20) - 8000d. [10,000(1.20) + 6000](1+ i'' ) - 8000
Task 2A business has two projects to invest in, as follows:Create a new spread sheet, calculate NPV for the following projects at discount rates of 3% and 7%, respectively, by creating a dynamic process. Project 1 Project 2Year Cash inflows Cash outflows Cash inflows Cash outflows0 0.00 70,000.00 0.00 70,000.001 24,000.00 13,000.00 25,000.00 15,000.002 22,000.00 1,000.00 25,000.00 03 25,000.00 0 20,000.00 04 25,000.00 0 43,000.00 21,000.005 17,500.00 7,500.00 20,000.00 5,000.00 P1: NPV P2: NPVThen, a) by using a built-in/Excel function, calculate the NPV for each project with discount rates of 3% and 7%, respectively;b) By comparing the NPVs at the rate of…
Q15. For the cash flows shown, determine the incremental cash flow between machines B and A (a) in year 0, (b) in year 3, and (c) in year 6. Machine A B First Cost, $ -13,000 –25,000 AOC, $ per Year -1,300 –400 Salvage Value, $ 5,000 6,000 Life, Years 3 6 a) The incremental cash flow between machines B and A in year 0 is $ . b) The incremental cash flow between machines B and A in year 3 is $ . c) The incremental cash flow between machines B and A in year 6 is $ .
Agape Mining Inc. is evaluating a project with the following cash flows: Year Cashflow 0 -$380,000,000.00 1 $79,000,000.00 2 $82,000,000.00 3 -$53,000,000.00 4 $175,000,000.00 5 $195,000,000.00 6 -$40,000,000.00 7 $188,000,000.00 8 $71,000,000.00 - Construct a spreadsheet and calculate the following (the required rate of return is 11%): o Payback period o Discounted payback period o Internal rate of return (IRR) o Modified IRR ▪ The discounting approach ▪ The reinvestment approach ▪ The combination approach o Net present value (NPV) - Based on your analysis, should the company take the project? Why? let the solution be detailed

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