Question 4: CLO 3 Capital Investment Decision Based upon the following cash flows, Using NPV should Famous Al’s Cookie Company introduce a new product, Rolling In Dough Pies? The initial investment is $180,000, and the cost of capital is 40%.1 $ 80,0002 $95,0003 $95,0004 $110,0005 $110,0006 $110,000 Based upon the following cash flows, Using IRR should Famous Al’s Cookie Company introduce a new product, Rolling In Dough Pies? The initial investment is $180,000, and the cost of capital is 40% and a comparative rate of 50%1 $80,0002 $95,0003 $95,0004 $110,0005 $110,0006 $110,000

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Question 4: CLO 3 Capital Investment Decision Based upon the following cash flows, Using NPV should Famous Al’s Cookie Company introduce a new product, Rolling In Dough Pies? The initial investment is $180,000, and the cost of capital is 40%. 1 $ 80,000 2 $95,000 3 $95,000 4 $110,000 5 $110,000 6 $110,000

Question 4: CLO 3 Capital Investment Decision Based upon the following cash flows, Using NPV should Famous Al’s Cookie Company introduce a new product, Rolling In Dough Pies? The initial investment is $180,000, and the cost of capital is 40%. 1 $ 80,000 2 $95,000 3 $95,000 4 $110,000 5 $110,000 6 $110,000

Survey of Accounting (Accounting I)

8th Edition

ISBN:9781305961883

Author:Carl Warren

Publisher:Carl Warren

Chapter12: Differential Analysis And Product Pricing

Section: Chapter Questions

Problem 12.1.2P

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Question 4: CLO 3 Capital Investment Decision Based upon the following cash flows, Using IRR should Famous Al’s Cookie Company introduce a new product, Rolling In Dough Pies? The initial investment is $180,000, and the cost of capital is 40% and a comparative rate of 50% 1 $80,000 2 $95,000 3 $95,000 4 $110,000 5 $110,000 6 $110,000
Question 2 Sunshine Corporation is reviewing an investment proposal. The initial cost of the investment isR52 500. The estimated cash flows and net profit for each year are presented in the schedulebelow. All cash flows are assumed to take place at the end of the year. year Net cash flows Net profit R20 000 R2 500 R17 500 R3 500 R15 000 R4 500 R12 500 R5 500 R10 000 R6 500 The cost of capital is 12%. Required:Calculate the following:1. Payback Period 2. Net Present value 3. Accounting rate of return
Problem 4–2 Ontario, Inc. establishes a 5% hurdle rate for its investment projects. The firm is considering three projects: X, Y, and Z at the end of its fiscal year. Ontario, Inc. has sufficient funds to finance all of these independent projects at the beginning of the new year. X Y Z Cost of investment $200,000 $300,000 $250,000 Cash outflow—year 1 15,000 10,000 20,000 Cash outflow—year 2 5,000 10,000 30,000 Cash inflow—year 1 40,000 46,000 75,000 Cash inflow—year 2 40,000 50,000 73,000 Cash inflow—year 3 40,000 44,000 71,000 Cash inflow—year 4 40,000 48,000 69,000 Cash inflow—year 5 40,000 52,000 67,000 Cash inflow—year 6 40,000 56,000 65,000 Required: Using Excel and its appropriate formula, compute the internal rate of return for projects X, Y, and Z. State which projects Ontario should accept.
QUESTION 2 One of the reports submitted by the infrastructure development team revealed the following Year 0 1 2 3 4 Cashflows A -R 210000 ,R15000 ,R 30000 , R 30 000 ,R 370000 Cashflow B -R 21000 , R11000 ,R 9000, R11000, R 9000 Suppose you require a 15 per cent return on investment. 2.1 Using the discounted payback period which investment would you choose and why? 2.2 If you apply the NPV rule which investment, will you choose and why? 2.3 Based on the provided answers which project would you finally choose and why? All parts correctly pls with explanation thanks!
Question 5 Bunnings Ltd is considering to invest in one of the two following projects to buy a new equipment. Each equipment will last 5 years and have no salvage value at the end. The company’s required rate of return for all investment projects is 8%. The cash flows of the projects are provided below. Equipment 1 Equipment 2 Cost $186,000 $195,000 Future Cash Flows Year 1 Year 2 Year 3 Year 4 Year 5 86 000 93 000 83 000 75 000 55 000 97 000 84 000 86 000 75 000 63 000 Required: Identify which option of equipment should the company accept based on Profitability Index? Identify which option of equipment should the company accept based on discounted pay back method if the payback criterion is maximum 2 years?
Question 1Real Estate Ltd is considering investing in property development, which requires an initial investment of £130,000. The annual cash inflows during years 1-3 are expected to be £40,000 for year 1; £45,000 for year 2 and £52,000 for year 3. The company’s money cost of capital is 6% and inflation is expected to be 3% during the life of the project. Required: a) Calculate the ARR of the project, taking inflation into account. b) Calculate the (Undiscounted) Payback Period of the project, taking inflation into account. c) Calculate the NPV of the project using the money cost of capital as the discount rate, and state clearly whether the project should be undertaken. d) Calculate the NPV of the project using the real rate of return as the discount rate (round up to 2 decimal places), and state clearly whether the project should be undertaken.e) Discuss the likely impact of your results in parts c) and d) above on Real Estate Ltd.
2. Project 2: investing $11 million to develop add-ons to existing products a. these add-ons to existing products are expected to generate $1.5 million positive cash flow every year thereafter on both new and existing products b. Calculate NPV. c. What is payback, PI, and IRR? What decisions should be made? d. If Skyhawk's management decided that they only need to collect their initial investment within 8 years on this project, should they invest? The rate of return = 8.28%
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…
QUESTION THREE Bates Limited is considering investing in two capital investment projects. The expected capital expenditure and its related cash flows is given in the table below Details Period Project A (K) Project B (K) Cash Expenditure At outset 410,000 500,000 Cash inflow Year 1 140,000 170,000 Cash inflow Year 2 170,000 195,000 Cash inflow Year 3 135,000 180,000 Cash inflow Year 4 110,000 140,000 Your company considers its cost of capital to be 13%. For Project B, assessed as the riskier project of the two, a risk-adjusted cost of capital of 15% is considered appropriate. Base rate is presently 5% and the company pays a margin of 1%, giving an all in borrowing rate of 6%. Inflation is presently 3%. (a) Assess the two projects using the investment appraisal technique of internal rate of return (IRR). (b) State which project you would recommend to your board and explain in detail your reasons. (c) Besides the IRR…
Ouestnon 4 A&B Enterprises is trying to select the best investment from among four alternatives. Each alternative involves an initial outlay of $100,000 and a 10% cost of capital. Their cash flows follow: Year c 1 $10,000 $50,000 $25,000 o 2 20,000 40,000 25,000 3 30,000 30,000 25,000 45,000 4 40,000 o 25,000 55,000 5 50,000 o 25,000 60,000 (i) Calculate each project's Payback Period (ii) Calculate each project's Net Present Value (NPV) (iii) Which project should the finn accept under each technique?
Problem 4 House Construction Inc. wants to purchase equipment in 2021. The company has collected the information below for three projects it is considering. Project 1 Project 2 Project 3 Net initial investment $7,500,000 $5,000,000 $9,000,000 Projected cash inflows: Year 1 $2,400,000 $1,200,000 $4,800,000 Year 2 $2,400,000 $2,500,000 $4,800,000 Year 3 $2,400,000 $ 1,700,000 $ 900,000 Year 4 $2,200,000 $ 1,000,000 $ 300,000 Year 5 $2,200,000 Required rate of return 6% 6% 6% Required: (a) Calculate the Net Present Value (NPV) for each project and indicate which project the company should adopt (b) Calculate the payback period for each project and indicate which project the company should adopt if it requires a return of its investment in not more than three (3) years.
A4 9a We find the following information on NPNG (No-Pain-No-Gain) Inc.: A4 9a EBIT = $2,000,000Depreciation = $250,000Change in net working capital = $100,000Net capital spending = $300,000 These numbers are projected to increase at the following supernormal rates for the next three years, and 5% after the third year for the foreseeable future: EBIT: 20%Depreciation: 10%Change in net working capital: 15%Net capital spending: 10% The firm’s tax rate is 35%, and it has 1,000,000 outstanding shares and $8,000,000 in debt. We have estimated the WACC to be 15%. a. Calculate the EBIT, Depreciation, Changes in NWC, and net capital spending for the next four years.