Exercise A-12 (Algo) Present Value of Cash FlowsStar City is considering an investment in the community center that is expected to return the following cash flows. Use Exhibit A.8.YearNet Cash Flow$ 25,00055, e0085, e0085,000105, e00123This schedule includes all cash inflows from the project, which will also require an immediate $205,000 cash outlay. The city is tax-exempt; therefore, taxes need not be considered.Required:a. What is the net present value of the project if the appropriate discount rate is 25 percent?b. What is the net present value of the project if the appropriate discount rate is 15 percent?Complete this question by entering your answers in the tabs below.Required ARequired BWhat is the net present value of the project if the appropriate discount rate is 25 percent? (Round PV factor to 3 decimalplaces. Negative amount should be indicated by a minus sign.)Net present value Exercise A-12 (Algo) Present Value of Cash FlowsStar City is considering an investment in the community center that is expected to return the following cash flows. Use Exhibit A.B.YearNet Cash FlOw$ 25,00055,00085,00085,000105,00023.This schedule includes all cash inflows from the project, which will also require an immediate $205,000 cash outlay. The city is tax-exempt; therefore, taxes need not be considered.Required:a. What is the net present value of the project if the appropriate discount rate is 25 percent?b. What is the net present value of the project if the appropriate discount rate is 15 percent?Complete this question by entering your answers in the tabs below.Required ARequired BWhat is the net present value of the project if the appropriate discount rate is 15 percent? (Round PV factor to 3 decimalplaces.)Net present value

Solution:- a)Calculation of Net present value If appropriate discount rate 25% as follows under:-

Star City is considering an investment in the community center that is expected to return the following cash flows. Use Exhibit A.B. Year 1 2 3 4 Net Cash Flow $ 25,000 55, e00 85, e00 85,000 105, e00 This schedule includes all cash inflows from the project, which will also require an immediate $205,000 cash outlay. The city is tax- exempt; therefore, taxes need not be considered. Required: a. What is the net present value of the project if the appropriate discount rate is 25 percent? b. What is the net present value of the project if the appropriate discount rate is 15 percent?

Star City is considering an investment in the community center that is expected to return the following cash flows. Use Exhibit A.B. Year 1 2 3 4 Net Cash Flow $ 25,000 55, e00 85, e00 85,000 105, e00 This schedule includes all cash inflows from the project, which will also require an immediate $205,000 cash outlay. The city is tax- exempt; therefore, taxes need not be considered. Required: a. What is the net present value of the project if the appropriate discount rate is 25 percent? b. What is the net present value of the project if the appropriate discount rate is 15 percent?

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

See similar textbooks

Similar questions

Topic: Gradients General Direction: Solve using Given-Required-Solution format. DO NOT USE EXCEL. Provide a Cash Flow Diagram (CFD). Use the formula given. Three local government units in Metro Manila have agreed to pool their resources from taxes for the construction of a major road connecting their areas. It is estimated that an amount of P500,000 is to be deposited at the end of the year into a shared account for the first phase of theproject which will last 9 years after the initial deposit has been made. The deposit will increase by P100,000 per year after the initial deposit up until the lifetime of the project. Assume 5% annual interest rate. Determine:(a) Total present worth of the deposits(b) Construct the equivalent cash flow diagram
Question 3: Juhayna Food Industries is attempting to select the best of three mutually exclusive projects. The initial investment and after-tax cash inflows associated with these projects are shown in the following table. Cash flow Project A Project B Project C Initial Investment 100000 120,000 130,000 Year 1 Cash Inflows 30000 36,500 38000 Year 2 cash inflows 35000 45000 20000 Year 3 cash inflows 40000 40000 42000 Year 4 cash inflows 38000 35000 45000 Year 5 cash inflows 20000 30000 50000 Taking into consideration that the cost of debt 7% , cost of preferred stock 12% and cost of new common stock 15%. The weight of each source of capital are long term debt 30% , preferred stock 20% and common stock equity 50%. TO dO Create a spreadsheet to answer the following questions: Calculate the firm‘s cost of capital ( WACC) Calculate the payback period for each project. Calculate the net present value (NPV) of each…
Question 3: Juhayna Food Industries is attempting to select the best of three mutually exclusive projects. The initial investment and after-tax cash inflows associated with these projects are shown in the following table. Cash flow Project A Project B Project C Initial Investment 100000 120,000 130,000 Year 1 Cash Inflows 30000 36,500 38000 Year 2 cash inflows 35000 45000 20000 Year 3 cash inflows 40000 40000 42000 Year 4 cash inflows 38000 35000 45000 Year 5 cash inflows 20000 30000 50000 Taking into consideration that the cost of debt 7% , cost of preferred stock 12% and cost of new common stock 15%. The weight of each source of capital are long term debt 30% , preferred stock 20% and common stock equity 50%. To compute the firm's cost of the capital where Cost of debt = 7% Cost of preferred stock = 12% Cost of common stock = 15% Weight of long term debt = 30% Weight of preferred stock = 20% Weight of common…
Question 3: Juhayna Food Industries is attempting to select the best of three mutually exclusive projects. The initial investment and after-tax cash inflows associated with these projects are shown in the following table. Cash flow Project A Project B Project C Initial Investment 100000 120,000 130,000 Year 1 Cash Inflows 30000 36,500 38000 Year 2 cash inflows 35000 45000 20000 Year 3 cash inflows 40000 40000 42000 Year 4 cash inflows 38000 35000 45000 Year 5 cash inflows 20000 30000 50000 Taking into consideration that the cost of debt 7% , cost of preferred stock 12% and cost of new common stock 15%. The weight of each source of capital are long term debt 30% , preferred stock 20% and common stock equity 50%. Calculate the internal rate of return (IRR) for each project. Discuss any conflict in ranking that may exist between NPV and IRR. Summarize the preferences dictated by each measure, and indicate which…
Toby Amberville’s Manhattan Café, Inc., is considering investment in two alternative capital budgeting projects. Project A is an investment of $75,000 to replace working but obsolete refrigeration equipment. Project B is an investment of $150,000 to expand dining roomfacilities.Relevant cash flowdata forthe two projects over their expected two-year lives are: Project A year 1 year 2 probability cash flow probability cash flow 0.18 0 $ 0.08 0 $ 0.64 50,000 $ 0.084 50,000 0.18 100,000 0.08 100,00 Project B year 1 year 2 probability cash flow probability cash flow 0.50 0 $ 0.125 0 $ 0.50 200,000 0.75 100,000 0.125 200,000 A. Calculate the expected value, standard deviation, and coefficient of variation for cash flows from each project. B. Calculate the risk-adjusted NPV for each project using a 15% cost of capital for the riskier project and a 12% cost of capital for the less risky one. Which project is preferred…
You are hired as consultant to Onesie Company to assist the company in evaluating two projects. Onesie's WACC is at 12%. The initial investment and estimated cash flows of the two projects are: PROJECT Y Year 0- $100,000 Year 1 - $65,000 Year 2- $30,000 Year 3- $30,000 Year 5- $10,000 PROJECT Y Year 0- $100,000 Year 1 - $35,000 Year 2- $35,000 Year 3- $35,000 Year 5- $35,000 a. compute the NPV, IRR, and Discounted Payback of both projects. b. If the projects are independent from each other, which one will you recommend to onesie? Why?
A corporation is evaluating a project with the following cash flows: Year 0: -28700 Year 1: 10900 Year 2: 13600 Year 3: 15500 Year 4: 12600: Year 5: -9100 The company uses a discount rate of 12% and a reinvestment rate of 7% on its project: a) Calculate MIRR using the discounting approach. b) Calculate MIRR using the reinvestment approach c) Calculate MIRR using the combination approach.
ABC International is evaluating a project in Buffalo. The project will create the following cash flows: Year Cash Flow 0 -$1,160,000 1 $335,000 2 $400,000 3 $295,000 4 $250,000 All cash flow will occur in Buffalo and expressed in dollars. In an attempt to improve its economy, the Buffalo government declared that all cash flows created by a foreign company are blocked and must be re-invested with the government for one year. This re-investment of these funds is at 4%. If the company uses a required return at 7%, What is the NPV? and What is the IRR on this project.
Manager Cafe "Blue Sky" is considering investing 2 (two) projects. Project X is an investment of $ 75,000 to replace a working but outdated cooling equipment. Project Y is a $ 1,500,000 investment to expand the dining facilities. Relevant cash flow data for the two projects over the expected 2 years are as follows: Project X Year 1 Year 2 Probability Cash Flow Probability Cash Flow 0.16 $0 0.08 $0 0.66 $50000 0.82 $50000 0.18 $100000 0.10 $100000 Project Y Year 1 Year 2 Probability Cash Flow Probability Cash Flow 0.50 $0 0.13 $0 0.50 $200000 0.74 $100000 0.13 $200000 Calculate: IRR for each project, and rank the projects according to the IRR criteria.
Manager Cafe "Blue Sky" is considering investing 2 (two) projects. Project X is an investment of $ 75,000 to replace a working but outdated cooling equipment. Project Y is a $ 1,500,000 investment to expand the dining facilities. Relevant cash flow data for the two projects over the expected 2 years are as follows: Project X Year 1 Year 2 Probability Cash Flow Probability Cash Flow 0.16 $0 0.08 $0 0.66 $50000 0.82 $50000 0.18 $100000 0.10 $100000 Project Y Year 1 Year 2 Probability Cash Flow Probability Cash Flow 0.50 $0 0.13 $0 0.50 $200000 0.74 $100000 0.13 $200000 Calculate: Expected value, standard deviation, and coefficient of variation for cash flows from each project. Compute: Risk-adjusted NPV for each project using a cost of capital of 15% for riskier projects, and 12%…
Manager Cafe "Blue Sky" is considering investing 2 (two) projects. Project X is an investment of $ 75,000 to replace a working but outdated cooling equipment. Project Y is a $ 1,500,000 investment to expand the dining facilities. Relevant cash flow data for the two projects over the expected 2 years are as follows: Project X Year 1 Year 2 Probability Cash Flow Probability Cash Flow 0.16 $0 0.08 $0 0.66 $50000 0.82 $50000 0.18 $100000 0.10 $100000 Project Y Year 1 Year 2 Probability Cash Flow Probability Cash Flow 0.50 $0 0.13 $0 0.50 $200000 0.74 $100000 0.13 $200000 Calculate: Expected value, standard deviation, and coefficient of variation for cash flows from each project. Compute: Risk-adjusted NPV for each project using a cost of capital of 15% for riskier projects, and 12% cost of capital for less risky projects. Which project is more…
) McGloire Construction is analyzing its capital expenditure proposals for the purchase of equipment in the coming year. The capital budget is limited to $5,000,000 for the year. Lori Alleyne, staff analyst at McGloire’s, is preparing an analysis of the three projects under consideration by Joyanne McGloire, the company’s owner.A B C D1 Project A Project B Project C2 Projected cash outflow3 Net initial investment $3 000 000 $1 500 000 $4 000 00045 Projected cash inflows6 Year 1 $1 000 000 $ 400 000 $2 000 0007 Year 2 1 000 000 900 000 2 000 0008 Year 3 1 000 000 800 000 200 0009 Year 4 1 000 000 100 0001011 Required rate of return 10% 10% 10%1. Because the company’s cash is limited, McGloire thinks the paybackmethod should be used to choose between the capital budgeting projects.a. List two benefits and two limitations of using the payback method to choose between projects? b. Calculate the payback period for each of the three projects. Ignore income taxes. Using the payback method,…