The finance team is looking at some various CD and savings options to create a sinkingfund to pay for a planned facility expansion. They are going to need $175,000 at the endof month 3, $160,000 at the end of month 4 and $120,000 at the end of month 6.Marinette has been working with 2 local banks; the following table outlines their currentreturn on various investments. (Blanks note that that option is not available at that bank.)ReturnTerm (months)Bank 1Bank 210.82%0.88%21.81%1.93%32.53%43.81%3.84%55.46%66.42%7.05%The 1-month investments noted in the table above each have a setup fee, Bank 1 has a$400 fee per investment, Bank 2 charges $600. This fee is charged at the beginning ofeach investment. Create an Excel model to determine the optimum solution to meet therequired payments.

https://docs.google.com/spreadsheets/d/1z1xxwU-D4FJFS1vZZKu33kCdT7qTM6Z1BGLtOBtvSoI/edit?usp=sharing…

Answered: The finance team is looking at some…

Principles of Accounting Volume 2

19th Edition

ISBN:9781947172609

Author:OpenStax

Publisher:OpenStax

Chapter11: Capital Budgeting Decisions

Section: Chapter Questions

Problem 8TP: Fenton, Inc., has established a new strategic plan that calls for new capital investment. The...

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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?
A grocery store is considering the purchase of a new refrigeration unit with an Initial Investment of $412,000, and the store expects a return of $100,000 in year one, $72000 in years two and three, $65,000 in years four and five, and $38,000 in year six and beyond, what is the payback period?
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?
Gina Ripley, president of Dearing Company, is considering the purchase of a computer-aided manufacturing system. The annual net cash benefits and savings associated with the system are described as follows: The system will cost 9,000,000 and last 10 years. The companys cost of capital is 12 percent. Required: 1. Calculate the payback period for the system. Assume that the company has a policy of only accepting projects with a payback of five years or less. Would the system be acquired? 2. Calculate the NPV and IRR for the project. Should the system be purchasedeven if it does not meet the payback criterion? 3. The project manager reviewed the projected cash flows and pointed out that two items had been missed. First, the system would have a salvage value, net of any tax effects, of 1,000,000 at the end of 10 years. Second, the increased quality and delivery performance would allow the company to increase its market share by 20 percent. This would produce an additional annual net benefit of 300,000. Recalculate the payback period, NPV, and IRR given this new information. (For the IRR computation, initially ignore salvage value.) Does the decision change? Suppose that the salvage value is only half what is projected. Does this make a difference in the outcome? Does salvage value have any real bearing on the companys decision?
Friedman Company is considering installing a new IT system. The cost of the new system is estimated to be 2,250,000, but it would produce after-tax savings of 450,000 per year in labor costs. The estimated life of the new system is 10 years, with no salvage value expected. Intrigued by the possibility of saving 450,000 per year and having a more reliable information system, the president of Friedman has asked for an analysis of the projects economic viability. All capital projects are required to earn at least the firms cost of capital, which is 12 percent. Required: 1. Calculate the projects internal rate of return. Should the company acquire the new IT system? 2. Suppose that savings are less than claimed. Calculate the minimum annual cash savings that must be realized for the project to earn a rate equal to the firms cost of capital. Comment on the safety margin that exists, if any. 3. Suppose that the life of the IT system is overestimated by two years. Repeat Requirements 1 and 2 under this assumption. Comment on the usefulness of this information.
The Ham and Egg Restaurant is considering an investment in a new oven that has a cost of $60,000, with annual net cash flows of $9,950 for 8 years. The required rate of return is 6%. Compute the net present value of this investment to determine whether or not you would recommend that Ham and Egg invest in this oven.
Markoff Products is considering two competing projects, but only one will be selected. Project A requires an initial investment of $42,000 and is expected to generate future cash flows of $6,000 for each of the next 50 years. Project B requires an initial investment of $210,000 and will generate $30,000 for each of the next 10 years. If Markoff requires a payback of 8 years or less, which project should it select based on payback periods?
Dawn is preparing a home office to perform subcontract projects for midsized architect firms. She plans to use $13,000 of her own funds, which currently generate a return of 4% per year. The remainder of financing will be provided by a $9,000 bank loan carrying a 9% per year interest rate. She hopes to realize a return of 3% above the average cost of capital to establish her office, and she realizes that the factors of inflation and risk should also be considered. Her decision is to add another 1.5% per year to compensate for these elements. What is the MARR she should use when evaluating projects? the Marr she should use is __%
The committee decided to secure a loan of $2,400,000 for the overall project. They got two offers from banks. - MC bank - pay in 24 months, $100,000 p/month of repayment, at an annual simple interest rate of 5% for the total loan - CS bank - pay in 16 months, $150,000 p/month of repayment at, an annual compound interest rate of 6% for the total loan The committee needs to decide which bank they should go with. So, they hired you as their financial advisor. 4. Create two amortization tables showing Payment number, Payment, Interest, Principal Reduction , Balance and total payments for Simple interest and Compound interest. 8. The city expects the population in the Residential Infrastructure area to grow exponentially at a rate of 2% per year. a. Calculate the projected population after 10 years if the current population is 50,000 (define a recurrence relation to answer this question). b. Draw a graph illustrating the population growth over 10 years. The city planning committee is…
The committee decided to secure a loan of $2,400,000 for the overall project. They got two offers from banks. - MC bank - pay in 24 months, $100,000 p/month of repayment, at an annual simple interest rate of 5% for the total loan - CS bank - pay in 16 months, $150,000 p/month of repayment at, an annual compound interest rate of 6% for the total loan The committee needs to decide which bank they should go with. So, they hired you as their financial advisor. 4. Create two amortization tables showing total payments for Simple interest and Compound interest. 5. Based on your calculations in Question 4, as the company financial advisor, which bank offer are you going to choose for the loan? 6. The Green Spaces project involves purchasing equipment worth $300,000. Assuming a flat rate depreciation of 10% per year, calculate the book value of the equipment after 4 years (define a recurrence relation to answer this question).
Pizza Girls, a national fast food franchise, has decided to professionalise its project evaluation. Previously, franchise locations had been selected on an ad hoc basis, with mixed results. The managing director has decided the net present value analysis is the best method. You have been given the task of determining the current cost of obtaining new finance and to calculate the cost of capital of Pizza Girls using the following information: Debt: 5,000 bonds with face value $1000 each and 8% coupon rate, paid annually, price quote of 115; the bonds have 20 years to maturity. Preferred stock: 100,000 shares of 5 percent preferred stock with a current price of $75, and a par value = $100 Common Stock: 1,500,000 shares of common stock, the beta of Pizza Girls is 1.5, Pizza Girls is expected to pay a dividend $0.60 next year, and the current price implicitly implies a dividend growth rate of 4% per year indefinitely. Market: the risk free rate is 4%,…
The Yurdone Corporation wants to set up a private cemetery business. According to the CFO, Barry M. Deep, business is “looking up.” As a result, the cemetery project will provide a net cash inflow of $124,000 for the firm during the first year, and the cash flows are projected to grow at a rate of 5.7 percent per year forever. The project requires an initial investment of $1,470,000. a. If the company requires a return of 13 percent on such undertakings, what is the NPV of the project? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.) b. The company is somewhat unsure about the assumption of a growth rate of 5.7 percent in its cash flows. At what constant growth rate would the company just break even if it still required a return of 13 percent on its investment? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.)

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