2) Your company recently hired a consulting firm to analyze the cash flows that could bethe consultantť's report, the cash flows that can be generated from the upgrade are as follows andgenerated from upgrading its distribution system. The consulting fees cost $15,000. Based onthe company's cost of capital is 10%:Cash Flow(50,000)25,00025,000(5000)10,000(5000)Year134State the decision rule(s) that would be the most appropriate for determining whether your firmshould undertake this project and calculate the appropriate values. Calculate the IRR, NPV.MIRR, payback, discounted payback, and profitability index for this cash flow streamhg evitsc

NPV Net present value (NPV) is the present value of all cash flows resulted in different time period…

Answered: the consultant's report, the cash flows…

Principles of Accounting Volume 2

19th Edition

ISBN:9781947172609

Author:OpenStax

Publisher:OpenStax

Chapter11: Capital Budgeting Decisions

Section: Chapter Questions

Problem 1PA: Your company is planning to purchase a new log splitter for is lawn and garden business. The new...

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Your company is planning to purchase a new log splitter for is lawn and garden business. The new splitter has an initial investment of $180,000. It is expected to generate $25,000 of annual cash flows, provide incremental cash revenues of $150,000, and incur incremental cash expenses of $100,000 annually. What is the payback period and accounting rate of return (ARR)?
Determine cash flows Natural Foods Inc. is planning to invest in new manufacturing equipment to make a new garden tool. The new garden tool is expected to generate additional annual sales of 5,000 units at 18 each. The new manufacturing equipment will cost 120,000 and is expected to have a 10-year life and a 17,000 residual value. Selling expenses related to the new product are expected to be 3% of sales revenue. The cost to manufacture the product includes the following on a per-unit basis: Determine the net cash flows for the first year of the project, Years 29, and for the last year of the project.
A group of engineers formed a corporation and the opportunity to invest P8,000,000. Their plan is to expand a domestic operation. It is estimated that this investment would return a net year end cash flow of P2,000,000 each year for 10 years and at the end of that time, the physical assets, which would no longer be needed, could be sold at P5,000,000. Compute the rate of return. 24.51% 22.68% 21.33% 23.81% 25.11% 20.95%
For each of the following problems, (a) draw the cash flow diagram; (b) present clean and clear manual solutions to the problem; (c) highlight the final answer (only the final answer as required by the problem) by enclosing it within a box. A company purchased now for $25,000 will lose $1,000 each year for the first 6 years. An additional $10,000 invested in the company during the 6th year will result in a profit of $5,000 each year from the 6th year through the 12th At the end of 12 years, the company can be sold for $30,000. Use the ERR method to determine the economic viability of the company . The external reinvestment rate is 10%.
For each of the following problems, (a) draw the cash flow diagram; (b) present clean and clear manual solutions to the problem; (c) highlight the final answer (only the final answer as required by the problem) by enclosing it within a box. A company purchased now for $25,000 will lose $1,000 each year for the first 6 years. An additional $10,000 invested in the company during the 6th year will result in a profit of $5,000 each year from the 6th year through the 12th At the end of 12 years, the company can be sold for $30,000. Use the IRR method to determine the economic viability of this investment. MARR is 12%.
For each of the following problems, (a) draw the cash flow diagram; (b) present clean and clear manual solutions to the problem; (c) highlight the final answer (only the final answer as required by the problem) by enclosing it within a box. A company purchased now for $25,000 will lose $1,000 each year for the first 6 years. An additional $10,000 invested in the company during the 6th year will result in a profit of $5,000 each year from the 6th year through the 12th At the end of 12 years, the company can be sold for $30,000. Use the IRR method to determine the economic viability of this investment. MARR is 12%. NO EXCEL
1-Cinemar Productions bought a piece of equipment for $150,847 that will last for 5 years. The equipment will generate net operating cash flows of $45,000 per year and will have no salvage value at the end of its life. What is the internal rate of return? 2-Your company is planning to purchase a new log splitter for its lawn and garden business. The new splitter has an initial investment of $81,000. It is expected to generate $10,000 of annual cash flows, provide incremental cash revenues of $152,437, and incur incremental cash expenses of $130,000 annually. What is the payback period? What is the APR? 3-How much must be invested now to receive $28,000 for 11 years if the first $28,000 is received one year from now and the rate is 8%? Round your present value factor to three decimal places and final answer to the nearest dollar.
You work for Whittenerg Inc., which is considering a new project whose data are shown below. What is the project's Year 1 cash flow? Sales revenues, each year $64,500 Depreciation $8,000 Other operating costs $25,000 Interest expense $8,000 Tax rate 35.0% a. $20,017 b. $20,715 c. $22,577 d. $19,318 e. $23,275
For each of the following problems, (a) draw the cash flow diagram; (b) present clean and clear manual solutions to the problem; (c) highlight the final answer (only the final answer as required by the problem) by enclosing it within a box. Company A is considering the purchase of a building it currently leases for $50,000 per year. The owner of the building put it up for sale at a price of $170,000, but because the firm has been a good tenant, the owner offered to sell it to the company for a cash price of $150,000 now. If purchased now, how long will it be before the company recovers its investment at an interest rate of 10% per year?
Keone Products Company is considering an investment in one of two new product lines. The investment required for either product line is $750,000. The net cash flows associated with each product are as follows: Year Liquid Soap Body Lotion 1 $140,000 $ 125,000 2 150,000 125,000 3 160,000 125,000 4 150,000 125,000 5 150,000 125,000 6 100,000 125,000 7 80,000 125,000 8 70,000 125,000 Total $1,000,000 $1,000,000 a. Recommend a product offering to Keone Products Company, based on the cash payback period for each product line. Line Item Description Year Payback period for liquid soap Payback period for body lotion b. The project with the net cash flows in the early years of the project life will be favored over the one with the net cash flows in the initial years..
Bell Manufacturing Inc. is considering the replacement of one of its old drill presses. Three alternative replacement presses are under consideration. The relevant cash flows associated with each are shown in the following table. The firm’s cost of capital is 15%. Machine A Machine B Machine C Initial Investment 85,000 $ 60,000 $ 130,000 $ Year Cash Inflows 1 18,000 $ 12,000 $ 50,000 $ 2 18,000 14,000 30,000 3 18,000 16,000 20,000 4 18,000 18,000 20,000 5 18,000 20,000 20,000 6 18,000 25,000 30,000 7 18,000 ----- 40,000 8 18,000 ----- 50,000 Calculate the net present value (NPV) of each press. Using NPV, evaluate the acceptability of each press. Rank the presses from best to worst using NPV. Calculate the profitability index (PI) for each press. Rank the presses from best to worst using PI.
TransITRI is a transportation company with a recent need of a new construction equipment at a first cost of $78,000 (Equation (1)), zero salvage value, and a cash flow before taxes (CFBT) per year t that follows Equation (2). CFBT = $30,000 – 3,000t (for t = 1, 2, … T) (1) CFBT = - $78,000 (for t =0) (2) Plot the cash flow diagram from year 0 (t=0) to year 9 (t=9)

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