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- AFN Equation Refer to Problem 9-1. What would be the additional funds needed if the companys year-end 2018 assets had been 7 million? Assume that all other numbers, including sales, are the same as in Problem 9-1 and that the company is operating at full capacity. Why is this AFN different from the one you found in Problem 9-1? Is the companys capital intensity ratio the same or different?Fenton, Inc., has established a new strategic plan that calls for new capital investment. The company has a 9.8% required rate of return and an 8.3% cost of capital. Fenton currently has a return of 10% on its other investments. The proposed new investments have equal annual cash inflows expected. Management used a screening procedure of calculating a payback period for potential investments and annual cash flows, and the IRR for the 7 possible investments are displayed in image. Each investment has a 6-year expected useful life and no salvage value. A. Identify which project(s) is/are unacceptable and briefly state the conceptual justification as to why each of your choices is unacceptable. B. Assume Fenton has $330,000 available to spend. Which remaining projects should Fenton invest in and in what order? C. If Fenton was not limited to a spending amount, should they invest in all of the projects given the company is evaluated using return on investment?Project B cost $5,000 and will generate after-tax net cash inflows of $500 in year one, $1,200 in year two, $2,000 in year three. $2,500 in year four, and $2,000 in year five. What is the NPV using 8% as the discount rate? For further instructions on net present value in Excel, see Appendix C.
- AFN EQUATION Refer to Problem 16-1. What additional funds would be needed if the companys year-end 2019 assets had been 4 million? Assume that all other numbers are the same. Why is this AFN different from the one you found in Problem 16-1? Is the companys capital intensity the same or different? Explain.Cash payback period for a service company Janes Clothing Inc. is evaluating two capital investment proposals for a retail outlet, each requiring an investment of 975,000 and each with a seven-year life and expected total net cash flows of 1,050,000. Location 1 is expected to provide equal annual net cash flows of 150,000, and Location 2 is expected to have the following unequal annual net cash flows: Determine the cash payback period for both location proposals.After-Tax Cash FlowsBelow is a list of aspects of various capital expenditure proposals that the capital budgeting team of Anchor, Inc., has incorporated into its net present value analyses during the past year. Unless otherwise noted, the items listed are unrelated to each other. All situations assume a 40% income tax rate and an 11% minimum desired rate of return.1. Pre-tax savings of $4,000 in cash expenses will occur in each of the next three years.2. A machine is purchased now for $52,000 cash.3. A long-haul tractor costing $42,000 will be depreciated $14,000, $18,600, $6,300, and $3,100, respectively, on the tax return over four years.4. Equipment costing $225,000 will be depreciated over five years on the tax return in the following amounts: $28,125 $56,250 $56,250 $56,250 and $28,125.5. Pre-tax savings of $12,800 in cash expenses will occur in each of the next six years.6. Pre-tax savings of $11,000 in cash expenses will occur in the first, third, and fifth years from now.7.…
- After-Tax Cash FlowsBelow is a list of aspects of various capital expenditure proposals that the capital budgeting team of Anchor, Inc., has incorporated into its net present value analyses during the past year. Unless otherwise noted, the items listed are unrelated to each other. All situations assume a 40% income tax rate and an 11% minimum desired rate of return.1. Pre-tax savings of $4,000 in cash expenses will occur in each of the next three years.2. A machine is purchased now for $46,000 cash.3. A long-haul tractor costing $36,000 will be depreciated $12,000, $16,000, $5,400, and $2,600, respectively, on the tax return over four years.4. Equipment costing $215,000 will be depreciated over five years on the tax return in the following amounts: $26,875 $53,750 $53,750 $53,750 and $26,875.5. Pre-tax savings of $10,800 in cash expenses will occur in each of the next six years.6. Pre-tax savings of $9,000 in cash expenses will occur in the first, third, and fifth years from now.7. The…NOT GRADED After-Tax Cash FlowsBelow is a list of aspects of various capital expenditure proposals that the capital budgeting team of Anchor, Inc., has incorporated into its net present value analyses during the past year. Unless otherwise noted, the items listed are unrelated to each other. All situations assume a 40% income tax rate and an 11% minimum desired rate of return.1. Pre-tax savings of $4,000 in cash expenses will occur in each of the next three years.2. A machine is purchased now for $52,000 cash.3. A long-haul tractor costing $42,000 will be depreciated $14,000, $18,600, $6,300, and $3,100, respectively, on the tax return over four years.4. Equipment costing $225,000 will be depreciated over five years on the tax return in the following amounts: $28,125 $56,250 $56,250 $56,250 and $28,125.5. Pre-tax savings of $12,800 in cash expenses will occur in each of the next six years.6. Pre-tax savings of $11,000 in cash expenses will occur in the first, third, and fifth years…A firm is evaluating its two independent projects, L (22) and W(34) for this year’s capital budgeting . The firm’s cost of capital or the required rate of return is 14%. The net incremental cash flows after tax for both the projects are as follows: Outflows Inflows Projects Year 1 2 3 4 5 L (22) -6,000 2,000 2,000 2,000 2,000 4,000 W (34) -18,000 5,600 5,600 5,600 5,600 6,600 Required: Calculate for each project: Payback Period IRR NPV PI Give your decision regarding acceptation and rejection of the project and explain your basis for the decision.