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- You are considering an investment project with the financial information provided below. Suppose the company is most concerned about the impact of its price estimate on the project's rate of return. How would you address this concern? The break-even value of unit price is ?Payback Period and Net Present Value If a project with conventional cash flows has a payback period less than the project’s life, can you definitively state the algebraic sign of the NPV? Why or why not? If you know that the discounted payback period is less than the project’s life, what can you say about the NPV? Explain. QWhat process does the net present value method use to help management determine whether a project is acceptable to a company? Options : A. It discounts net cash flows to their present value and then compares that value to the capital outlay required by the project.B. It determines the interest rate that will cause the present value of the capital expenditure to equal the present value of the expected net cash flows.C. It divides the present value of net cash flows by the initial investment to determine the profitability index of the project.D. It identifies the time period required to recover the cost of the capital investment from the net annual cash flow produced by the project.
- Question 6. You are asked to evaluate a mining project with costs in the developmental stage followed by benefits in the production stage and ending with significant costs at the end of the study period for reclamation of the land to its original state. You have determined that the project has two positive IRRs. a. Summarize a strategy for modifying the CB C cash flow pattern into a simpler CB cash flow pattern with just one IRR solution and a straightforward decision rule. b. Ilustrate your strategy with the following example: Capital cost at t-0 is $70 million; Constant benefits of $40 million in years 1-5; Year 6 reclamation cost of S140 million; Appropriate MARR = 20%. Set up the cash flow diagram, but do not solve for IRR.Which of the following statements is (are) true about NPV as an investment valuation method: (i) NPV should be used when capital is not rationed. (ii) NPV is only useful if the cash flows are positive. (iii) NPV measures the extra value investors would receive when accepting a project.Sunshine Smoothies Company (SSC) manufactures and distributes smoothies. It is considering the "weight loss" smoothies project. The project would require a $4 million investment outlay today The after-tax cash flows would depend on consumers’ demand. There is a 30% chance that demand will be good, and the project will produce after-tax cash flows of $2 million at the end of each year for the next 3 years. There is a 70% chance that demand will be poor, and the project will produce after-tax cash flows of $1 million at the end of each year for the next 3 years. The project is riskier than the firm's other projects, so it has a WACC of 12%. - The firm will know whether the project is success or not after receiving first year's cash flows from normal operating.. - After receiving the first year's cash flows (no matter what receive $1M or $2M in the first year), the firm will have the option to abandon the project. - If the firm decides to abandon the project, the company will no longer…
- Consider the following two mutually exclusive investment projects: Salvage values represent the net proceeds (after tax) from the disposal of assets if they are sold at the end of the year listed. Both projects will be available (and can be repeated) with the same costs and salvage values for an indefinite period.(a) With an infinite planning horizon, which project is a better choice atMARR= 12%?(b) With a 10-year planning horizon, which project is a better choice atMARR= 12%?Smith and Co. has to choose between two mutually exclusive projects. If it chooses project A, Smith and Co. will have the opportunity to make a similar investment in three years. However, if it chooses project B, it will not have the opportunity to make a second investment. The following table lists the cash flows for these projects. If the firm uses the replacement chain (common life) approach, what will be the difference between the net present value (NPV) of project A and project B, assuming that both projects have a weighted average cost of capital of 10%? Cash Flow Project A Project B Year 0: –$17,500 Year 0: –$40,000 Year 1: 10,000 Year 1: 8,000 Year 2: 16,000 Year 2: 16,000 Year 3: 15,000 Year 3: 15,000 Year 4: 12,000 Year 5: 11,000 Year 6: 10,000 $15,731 $11,012 $12,585 $9,439 $14,158 Smith and Co. is considering a three-year project that has a weighted average cost of capital…Consider the following two mutually exclusive projects: (a) At an interest rate of 25%, which project would you recommend choosing?(b) Compute the area of negative project balance, discounted payback period, and area of positive project balance for each project. Which project isexposed to a higher risk of loss if either project terminates at the end ofyear 2?
- Consider the investment project with the net cash flows as shown in the following table. What would be the value of X if the project's IRR is 23%? (a) $4,500(b)$4,750(c) $6,890(d)$6,500A utility company is considering the following plans to provide a certain service required by resent demand and the respective growth of demand for the coming 18 years. Plan R requires an immediate investment of 500,000 in property that has an estimated life of 18 years and with 20% terminal salvage value. Annual disbursements for operation and maintenance will be 50,000. Annual property taxes will be 2% of the first cost. Plan S requires an immediate investment of 300,000 in property that has an estimated life of 18 years with 20% terminal salvage value. Annual disbursements for its operation and maintenance during the first 6 years will be 40,000. After 6 years, an additional investment of 400,000 will be required having an estimated life of 12 years with 40% terminal salvage value. After this additional property is installed, annual disbursements for operation and maintenance of the combined property will be 60,000. Annual property taxes will be 2% of the first cost of property in…Describe the net future worth of the project?
