Exercise 16-26 Internal Rate of Return; Uneven Cash Flows (Section 1) (LO 16-1) The trustees of the Danube School of Art and Music, located in Tuttlingen, Germany, are considering a major overhaul of the school's audio system. With or without the overhaul, the system will be replaced in two years. If an overhaul is done now, the trustees expect to save the following repair costs during the next two years: year 1, 4,400 euros; year 2, 6,400 euros. The overhaul will cost 8,780 euros. (The euro is used in most European markets.) Use Appendix A for your reference. (Use appropriate factor(s) from the tables provided.) Required: Use trial and error to compute the internal rate of return on the proposed overhaul. (Hint: The NPV of the overhaul is positive if an 10 percent discount rate is used, but the NPV is negative if a 18 percent rate is used.)
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- REPLACEMENT CHAIN The Fernandez Company has an opportunity to invest in one of two mutually exclusive machines that will produce a product the company will need for the next eight years. Machine A costs 10 million but will provide after-tax inflows of 4 million per year for 4 years. If Machine A were replaced, its cost would be 12 million due to inflation and its cash inflows would increase to 4.2 million due to production efficiencies. Machine B costs 15 million and will provide after-tax inflows of 3.5 million per year for 8 years. If the WACC is 10%, which machine should be acquired? Explain.Ch 25 pro 8 Please provide instructions. Cash Payback Period, Net Present Value Analysis, and Qualitative Considerations The plant manager of Shannon Electronics Company is considering the purchase of new automated assembly equipment. The new equipment will cost $48,000. The manager believes that the new investment will result in direct labor savings of $16,000 per year for 10 years. Present Value of an Annuity of $1 at Compound Interest Year 6% 10% 12% 15% 20% 1 0.943 0.909 0.893 0.870 0.833 2 1.833 1.736 1.690 1.626 1.528 3 2.673 2.487 2.402 2.283 2.106 4 3.465 3.170 3.037 2.855 2.589 5 4.212 3.791 3.605 3.353 2.991 6 4.917 4.355 4.111 3.785 3.326 7 5.582 4.868 4.564 4.160 3.605 8 6.210 5.335 4.968 4.487 3.837 9 6.802 5.759 5.328 4.772 4.031 10 7.360 6.145 5.650 5.019 4.192 a. What is the payback period on this project? years b. What is the net present value, assuming a 10% rate of return? Use the table provided above. Round to the nearest whole dollar.…Problem 9-2 Relevant Cash Flows [LO 1] Winnebagel Corporation currently sells 29,900 motor homes per year at $82,500 each and 8,900 luxury motor coaches per year at $124,500 each. The company wants to introduce a new portable camper to fill out its product line; it hopes to sell 24,900 of these campers per year at $28,500 each. An independent consultant has determined that if the company introduces the new campers, it should boost the sales of its existing motor homes by 4,500 units per year and reduce the sales of its motor coaches by 1,040 units per year. What is the amount to use as the annual sales figure when evaluating this project?
- Problem 8-30 NPV and IRR [LO 3, 4] Anderson International Limited is evaluating a project in Erewhon. The project will create the following cash flows: Year Cash Flow 0 −$ 580,000 1 210,000 2 153,000 3 218,000 4 197,000 All cash flows will occur in Erewhon and are expressed in dollars. In an attempt to improve its economy, the Erewhonian government has declared that all cash flows created by a foreign company are “blocked” and must be reinvested with the government for one year. The reinvestment rate for these funds is 5 percent. Assume Anderson uses a required return of 11 percent on this project. What is the NPV of the project? Note: A negative answer should be indicated by a minus sign. Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16. What is the IRR of the project? Note: Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.NEED PART 4 & 5 ANSWERED ONLY Boston Cola is considering the purchase of a special-purpose bottling machine for $35,000. It is expected to have a useful life of 4 years with no terminal disposal value. The plant manager estimates the following savings in cash operating costs: Boston Cola uses a required rate of return of 14% in its capital budgeting decisions. Ignore income taxes in your analysis. Assume all cash flows occur at year-end except for initial investment amounts. Data Table Year Amount Year 1 $15,000 Year 2 11,000 Year 3 10,000 Year 4 8,000 Total $44,000 (Use factor amounts rounded to three decimal places. Round your answers to the nearest whole dollar. Use a minus sign or parentheses for a negative net present value.) Calculate the following for the special purpose bottling machine: 1. Net present value = -1900 2. Payback period = 2.90 3. Discounted payback period: Amount can not be determined…ch 12 #5 The management of Kunkel Company Is considering the purchase of a $26,000 machine that would reduce operating costs by $6500 per year. At the end of the machines five-year useful life, it will have zero salvage value. The companies required rate of return is 16%. 1) determine the net present value of the investment on the machine. 2) what is the difference between the total, undiscounted cash inflows and cash out flows over the entire life of the machine?  Can you show me how to do this? Also, i don’t know which chart I’m supposed to use.
- Question 2 - UNIT 2: CAPITAL BUDGETTING PROCESS UNIT 3: CASH FLOW ESTIMATION Adler is replacing its old packing line with a more efficient line. The old line was being depreciated on a straight-line basis at a rate of $20,000 per year. The old machine has a current book value of $100,000. The new line, which costs $910,000, will be depreciated on a 10-year MACRS schedule. The more efficient operation is expected to increase revenues by $50,000 per year and reduce annual operating costs by $80,000. a) Compute the net cash flows for Adler in year Assume Adler has a marginal tax rate of 40%. Use the rounded MACRS schedule listed below: (10-Year Depreciation Schedule: 10%, 18%, 14%, 12%, 9%, 7%, 7%, 7%, 7%, 6%, 3%) Kaneb is evaluating two alternative pipeline welders. Welder A costs $310,000, has a 7-year life, and is expected to generate net cash inflows of $78,000 in each of the 7 years. Welder B costs $320,000, has a 5-year life, and is expected to generate annual net…Exercise 14-4 (Algo) Uncertain Future Cash Flows [LO14-4] Lukow Products is investigating the purchase of a piece of automated equipment that will save $150,000 each year in direct labor and inventory carrying costs. This equipment costs $940,000 and is expected to have a 7-year useful life with no salvage value. The company’s required rate of return is 14% on all equipment purchases. Management anticipates that this equipment will provide intangible benefits such as greater flexibility and higher-quality output that will result in additional future cash inflows. Click here to view Exhibit 14B-1 and Exhibit 14B-2, to determine the appropriate discount factor(s) using table. Required: 1. What is the net present value of the piece of equipment before considering its intangible benefits? (Enter negative amount with a minus sign. Round your final answer to the nearest whole dollar amount.) 2. What minimum dollar value per year must be provided by the equipment’s intangible benefits to…Exercise 12-14 (Algo) Comparison of Projects Using Net Present Value [LO12-2] Labeau Products, Limited, of Perth, Australia, has $15,000 to invest. The company is trying to decide between two alternative uses for the funds as follows: Invest in Project X Invest in Project Y Investment required $ 15,000 $ 15,000 Annual cash inflows $ 5,000 Single cash inflow at the end of 6 years $ 36,000 Life of the project 6 years 6 years The company’s discount rate is 16%. Click here to view Exhibit 12B-1 and Exhibit 12B-2, to determine the appropriate discount factor(s) using tables. Required: 1. Compute the net present value of Project X. 2. Compute the net present value of Project Y. 3. Which project would you recommend the company accept?
- Module 5 Question 3 (Calculating IRR, payback, and a missing cash flow) The Merriweather Printing Company is trying to decide on the merits of constructing a new publishing facility. The project is expected to provide a series of positive cash flows for each of the next four years. The estimated cash flows associated with this project are as follows: Year Project Cash Flow0 ?1 $800,0002 $400,0003 $300,0004 $500,000 If you know that the project has a regular payback of 2.5 years, what is the project's IRR?11. Uneven cash flows A series of cash flows may not always necessarily be an annuity. Cash flows can also be uneven and variable in amount, but the concept of the time value of money will continue to apply. Consider the following case: The Purple Lion Beverage Company expects the following cash flows from its manufacturing plant in Palau over the next six years: Annual Cash Flows Year 1 Year 2 Year 3 Year 4 Year 5 Year 6 $400,000 $20,000 $180,000 $300,000 $350,000 $725,000 A. The CFO of the company believes that an appropriate annual interest rate on this investment is 9%. What is the present value of this uneven cash flow stream, rounded to the nearest whole dollar? $1,975,000 $1,395,097 $1,775,000 $600,000 B. Identify whether the situations described in the following table are examples of uneven cash flows or annuity payments: Description Uneven Cash Flows Annuity Payments Debbie has…Problem 6-2 Calculating Project NPV The Fancy Manufacturing Company is considering a new investment. Financial projections for the investment are tabulated here. The corporate tax rate is 24 percent. Assume all sales revenue is received in cash, all operating costs and income taxes are paid in cash, and all cash flows occur at the end of the year. All net working capital is recovered at the end of the project. Year 0 Year 1 Year 2 Year 3 Year 4 Investment $ 27,700 Sales revenue $ 14,800 $ 16,400 $ 17,800 $ 14,300 Operating costs 3,600 3,450 5,600 4,200 Depreciation 6,925 6,925 6,925 6,925 Net working capital spending 370 270 365 220 ? a. Compute the incremental net income of the investment for each year. (Do not round intermediate calculations and round your answers to the nearest whole number, e.g., 32.) b. Compute the incremental cash flows of the investment for each year. (A negative amount should be indicated by a minus sign. Do not round intermediate calculations and round your…