Hh2.Account Required 1 Required 2 Required 3 Required 4YearDetermine the break-even time for this investment.Note: Enter cash outflows with a minus sign. Round your break-even time answer to 1 decimal place.Initial investmentYear 1Year 2Year 3Year 4Year 5Break-even time =Net Cash FlowsS(245,000)Show Transcribed TextNet present valueSyearsRequired 1 Required 2 Required 3 Required 4Show Transcribed TextPresent Value of Present Value of Net1 at 10%Cash Flows per YearDetermine the net present value for this investment.ĆRequired 1 Required 2 Required 3 Required 4ĈSĆShould management invest in this project based on net present value?Should management invest in this project based on net present value?CumulativePresent Value ofNet Cash Flows Salsa Company is considering an investment in technology to improve its operations. The Investment costs $245,000 and will yieldthe following net cash flows. Management requires a 10% return on Investments. (PV of $1, FV of $1, PVA of $1, and FVA of $1)Note: Use appropriate factor(s) from the tables provided.Year1In5Net cash Flow$ 47,98052,50075,50096,880125,280Required:1. Determine the payback period for this Investment.2. Determine the break-even time for this Investment.3. Determine the net present value for this Investment.4. Should management Invest in this project based on net present value?Complete this question by entering your answers in the tabs below.Required 1 Required 2 Required 3 Required 4Determine the payback period for this investment.Note: Enter cash outflows with a minus sign. Round your Payback Period answer to 1 decimal place.YearInitial investmentYear 1Year 2Year 3Year 4Year 5Payback period =Net Cash Flows$(245,000)47,90052,50075,50096,000125,200Cumulative Net CashFlows

Net present value is the modern method of capital budgeting that is used to determine the present…

Required 1 Required 2 Required 3 Required 4 Determine the break-even time for this investment. Note: Enter cash outflows with a minus sign. Round your break-even time answer to 1 decimal place. Year Initial investment Year 1 Year 2 Year 3 Year 4 Year 5 Break-even time= Net Cash Flows $ (245,000) Show Transcribed Text Present Value of Present Value of Net 1 at 10% Cash Flows per Year years Required 1 Required 2 Required 3 Required 4 Show Transcribed Text Determine the net present value for this investment. Net present value Required 1 Required 2 Required 3 Required 4 2 Should management invest in this project based on net present value? Should management invest in this project based on net present value? C Cumulative Present Value of Net Cash Flows

Required 1 Required 2 Required 3 Required 4 Determine the break-even time for this investment. Note: Enter cash outflows with a minus sign. Round your break-even time answer to 1 decimal place. Year Initial investment Year 1 Year 2 Year 3 Year 4 Year 5 Break-even time= Net Cash Flows $ (245,000) Show Transcribed Text Present Value of Present Value of Net 1 at 10% Cash Flows per Year years Required 1 Required 2 Required 3 Required 4 Show Transcribed Text Determine the net present value for this investment. Net present value Required 1 Required 2 Required 3 Required 4 2 Should management invest in this project based on net present value? Should management invest in this project based on net present value? C Cumulative Present Value of Net Cash Flows

Managerial Accounting: The Cornerstone of Business Decision-Making

7th Edition

ISBN:9781337115773

Author:Maryanne M. Mowen, Don R. Hansen, Dan L. Heitger

Publisher:Maryanne M. Mowen, Don R. Hansen, Dan L. Heitger

Chapter12: Capital Investment Decisions

Section: Chapter Questions

Problem 53P

See similar textbooks

Similar questions

Garnette Corp is considering the purchase of a new machine that will cost $342,000 and provide the following cash flows over the next five years: $99,000, $88,000, $92,000. $87,000, and $72,000. Calculate the IRR for this piece of equipment. For further instructions on internal rate of return in Excel. see Appendix C.
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?
Buena Vision Clinic is considering an investment that requires an outlay of 600,000 and promises a net cash inflow one year from now of 810,000. Assume the cost of capital is 10 percent. Required: 1. Break the 810,000 future cash inflow into three components: a. The return of the original investment b. The cost of capital c. The profit earned on the investment 2. Now, compute the present value of the profit earned on the investment. 3. Compute the NPV of the investment. Compare this with the present value of the profit computed in Requirement 2. What does this tell you about the meaning of NPV?
Consolidated Aluminum is considering the purchase of a new machine that will cost $308,000 and provide the following cash flows over the next five years: $88,000, 92,000, $91,000, $72,000, and $71,000. Calculate the IRR for this piece of equipment. For further instructions on internal rate of return in Excel, see Appendix C.
Assume a company is going to make an investment of $450,000 in a machine and the following are the cash flows that two different products would bring in years one through four. Which of the two options would you choose based on the payback method?
Assume a company is going to make an investment in a machine of $825,000 and the following are the cash flows that two different products would bring. Which of the two options would you choose based on the payback method?
The management of Ryland International Is considering Investing in a new facility and the following cash flows are expected to result from the investment: A. What Is the payback period of this uneven cash flow? B. Does your answer change if year 6s cash inflow changes to $920,000?
Manzer Enterprises is considering two independent investments: A new automated materials handling system that costs 900,000 and will produce net cash inflows of 300,000 at the end of each year for the next four years. A computer-aided manufacturing system that costs 775,000 and will produce labor savings of 400,000 and 500,000 at the end of the first year and second year, respectively. Manzer has a cost of capital of 8 percent. Required: 1. Calculate the IRR for the first investment and determine if it is acceptable or not. 2. Calculate the IRR of the second investment and comment on its acceptability. Use 12 percent as the first guess. 3. What if the cash flows for the first investment are 250,000 instead of 300,000?
Falkland, Inc., is considering the purchase of a patent that has a cost of $50,000 and an estimated revenue producing life of 4 years. Falkland has a cost of capital of 8%. The patent is expected to generate the following amounts of annual income and cash flows: A. What is the NPV of the investment? B. What happens if the required rate of return increases?
Mason, Inc., is considering the purchase of a patent that has a cost of $85000 and an estimated revenue producing lite of 4 years. Mason has a required rate of return that is 12% and a cost of capital of 11%. The patent is expected to generate the following amounts of annual income and cash flows: A. What is the NPV of the investment? B. What happens if the required rate of return increases?
There are two projects under consideration by the Rainbow factory. Each of the projects will require an initial investment of $35,000 and is expected to generate the following cash flows: Use the information from the previous exercise to calculate the internal rate of return on both projects and make a recommendation on which one to accept. For further instructions on internal rate of return in Excel, see Appendix C.
The management of Kawneer North America is considering investing in a new facility and the following cash flows are expected to result from the investment: A. What is the payback period of this uneven cash flow? B. Does your answer change if year 10s cash inflow changes to $500,000?