Your firm has a potential project that will cost $5,000 now to begin. The project will then generate after-tax cash flows of •$402 at the end of the next three years and then $1,867 per year for the three years after that. If the discount rate is 8.55% then what is the NPV?

Your firm has a potential project that will cost $5,000 now to begin. The project will then generate after-tax cash flows of •$402 at the end of the next three years and then $1,867 per year for the three years after that. If the discount rate is 8.55% then what is the NPV?

Principles of Accounting Volume 2

19th Edition

ISBN:9781947172609

Author:OpenStax

Publisher:OpenStax

Chapter11: Capital Budgeting Decisions

Section: Chapter Questions

Problem 15EA: Project A costs $5,000 and will generate annual after-tax net cash inflows of $1,800 for five years....

See similar textbooks

Related questions

Q: A project requires a $1 million initial investment, and will yield incremental after-tax cash flows…

A: Net present value is the present value of cash inflows discounted at the required rate of return for…

Q: Rodriquez's Hot Rods is considering a new project with an initial cost of $54,780 and a discount…

A: Discounted payback period is calculated after discounting all the future cash flows. It provides the…

Q: A proposed project is expected to generate returns of $50,000 per year for each of the next four…

A: Annual return (A) = $50000 n = 4 years Project cost (C) = $145685 Let i = IRR

Q: What is the NPV of the project if the required return is 12% APR compounded annually?

A: Net Present Value: It is estimated by the difference between the discounted cash inflows and the…

Q: Your company is currently considering two investment projects. Each project requires an upfront…

A: Payback period refers to the time period required for a project to recover its initial cash outflow…

Q: You invest $12,650 in a project today. You expect to receive cash flows $3,200, $5,160, $4,288,…

A: Discounted payback period is calculated as number of years required for a project to recover the…

Q: A potential project requires an initial investment of $45,000 at the beginning of the 1st year, and…

A: Initial investment = $ 45,000 Annual cash inflow = $ 35,000 Period = 3 Years Required rate of return…

Q: You are considering a project with an initial cost of $7,800. What is the payback period for this…

A: Calculation of Payback Period:Using Excel Spreadsheet:

Q: he new firm is planning a project with an initial cost of $50,000. This project will produce a cash…

A: In this we have to find out WACC and than based on WACC calculate the net present value.

Q: Calculate the PV of the project using the APV method.

A: Adjusted Present Value: It is a method used in capital budgeting to value a project or a company.…

Q: You are considering investing in a project that will cost $210,000. The net annual cash flows from…

A: The initial cash outflow is $210,000.

Q: Chrustuba Inc. is evaluating a new project that would cost $8.2 million at t = 0. There is a 50%…

Q: Consider a project to produce solar water heaters. It requires a $10 million investment and offers a…

A: a.Calculation of Present Value of Interest Tax Shield:Excel Spreadsheet:

Q: Cooper Industries is considering a project that would require an initial investment of P235,000. The…

A: Discount factor = initial investment / Annual cost savings = P235,000/P70,110 = 3.352

Q: An investment project costs $50,000 and has annual cash flows of $3,500 for 20 years. What is the…

A: Discounted Payback period refers to one of the modern techniques which measure the time that the…

Q: Och, Inc., is considering a project that will result in initial pretax cash savings of $2 million at…

A: The net present value of a capital project shows its profitability position. It shows an absolute…

Q: A company is considering an investment that will cost $759,000 and have a useful life of 6 years.…

A: NPV is the net current worth of cash flows that are expected to occur in the future.

Q: The Dallas Development Corporation is considering the purchase of an apartment project for $100.000.…

A: Given information : Initial investment = $100,000 Estimated cash flows = $15,000 Tenure of project =…

Q: Delta Enterprises, Inc. has a WACC of 8% and is considering a project that requires a cash outlay of…

Q: Let's say you have the opportunity to invest in a project that will require you to invest…

A: Net Present Value(NPV) is amongst one of the modern techniques of capital budgeting which considers…

Q: You are evaluating a project that will cost $500,000 but is expected to produce cash flows of…

A: To calculate the payback period we will use the below formula Payback period = Cost of…

Q: John is considering a project with cash inflows of $1750, $1850, $2000 and $2550 over the next four…

A: Net present value (NPV) is used to determine the present value of all future cash flows. Net present…

Q: You are evaluating a project that will cost $502,000, but is expected to produce cash flows of…

A: 1. Pay back period is the length of time required to recover the cost of Investment. It is…

Q: East Coast Television is considering a project with an initial outlay of $X (you will have to…

A: Initial outlay = X Annual cashflow (A) = $59000 n = 16 years MARR = 11% IRR = r = 14%

Q: A project requires a $1 million initial investment, and will yield incremental after-tax cash flows…

A: To calculate the NPV we will use the below formula NPV = [CF1/(r-g)]-P Where CF1 - Cash inflow in…

Q: A project is expected to cost $4 million today and generate a net after-tax cash flow of $600,000 at…

A: The net present value method is a capital budgeting technique that evaluates a capital investment's…

Q: What is the NPV of a $45,000 project that is expected to have an after-tax cash flow of $14,000 for…

A: Excel Spreadsheet: Excel Workings:

Q: You are considering a project with an initial cash outlay of $100,000 and expected free cash flows…

A: Payback period = Initial cash outlay / free cashflow NPV = present value of future cashflow -…

Q: A project will have an initial investment requirement of $5,000. Then, it will generate 5 years of…

A: Given:

Q: A firm is considering a six-year project with a payback period of 3.5 years. It has cash flows the…

A: Payback period means the period when the project is able to recover its initial investment without…

Q: e are examining a new project. We expect to sell 6,000 units per year at $74 net cash flow apiece…

A: Data given: annual cash flow is projected =$74 × 6,000 = $444,000. Discount rate = 18 %, Initial…

Q: A new machine will cost $400,000 and generate after-tax cash inflows of $50,000 for 12 years. Find…

A: Cost of the machine = $400,000 After tax cash inflow of $50,000 for 12 years Opportunity cost is 11%…

Q: What is the NPV of the project if the required return is 12% APR compounded annually?

A: Net Present Value: It is a measure of absolute profitability for the investment and this method is…

Q: Your company is currently considering two investment projects. Each project requires an upfront…

A: 1.a)Computation of payback period for project A and project B:Hence, the payback period of project A…

Q: The Dallas Development Corporation is considering the purchase of an apartment project for $100,000.…

A: Calculating IRR: Internal rate of return is calculated to find out the discount rate that is…

Q: our firm is considering a project that would cost $325,000 and be depreciated straight-line over…

A: In this we have to find out the present value and equivalent annual cost.

Q: Your company is currently considering two investment projects. Each project requires an upfront…

A: Payback period refers to the time period required for a project to recover its initial cash outflow.…

Q: You are considering a project which will cost $140,000. It is expected to bring in incomes of…

A: Initial cost = $140,000 Annual income (C) = $45,000 Period (n) = 5 Years Discount rate (r) = 0.12…

Q: You are considering investing $15,000 in a project today. This project will generate $6,500 per year…

A: Net present value calculation is one of the technique of capital budgeting, under which present…

Q: You are evaluating a project that requires an investment of $102 today and garantees a single cash…

A: Investment required - $102 Single cash flows - $127 one year Debt financing - 100% Risk-free rate -…

Q: For a major plant expansion project, a company wants to have $63 million 5 years from now If the…

A: Solution: Money is invested somewhere to earn interest on it. The amount initially deposited in…

Q: Consider a project to produce solar water heaters. It requires a $10 million investment and offers a…

A: Net Present Value of the project is:

Q: IRRs

A: IRR stands for internal rate of return is a process of computing the percentage of return over…

Q: There is a new product launch, and the research and development costs are $40 million today. The…

A: Capital Budgeting A method that helps determine whether a company's long-term investments are worth…

Q: Consider an investment that costs $100,000 and has a cash inflow of $25,000 every year for 5 years.…

A: Initial cost (C) = $100000 Annual cashflow (A) = $25000 n = 5 years r = 9% Let IRR = i

Concept explainers

Production Budget

A budget can be defined as a financial plan designed by an undertaking for a definite period in the future that can contribute towards enhancing the financial success of the business undertaking. It is used to estimate the revenue and expenses. The budget generally takes into account both current and future income and expenses.

Question

Your firm has a potential project that will cost $5,000 now to
begin. The project will then generate after-tax cash flows of
• $402 at the end of the next three years and then $1,867 per
year for the three years after that. If the discount rate is 8.55%
then what is the NPV?

Expert Solution

This question has been solved!

Explore an expertly crafted, step-by-step solution for a thorough understanding of key concepts.

This is a popular solution!

SEE SOLUTION Check out a sample Q&A here

Step 1

VIEW

Step 2

VIEW

Trending now

This is a popular solution!

Step by step

Solved in 2 steps with 2 images

SEE SOLUTION Check out a sample Q&A here

Knowledge Booster

Learn more about

Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, finance and related others by exploring similar questions and additional content below.

Similar questions

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?
Redbird Company is considering a project with an initial investment of $265,000 in new equipment that will yield annual net cash flows of $45,800 each year over its seven-year life. The companys minimum required rate of return is 8%. What is the internal rate of return? Should Redbird accept the project based on IRR?
Jasmine Manufacturing is considering a project that will require an initial investment of $52,000 and is expected to generate future cash flows of $10,000 for years 1 through 3, $8,000 for years 4 and 5, and $2,000 for years 6 through 10. What is the payback period for this project?
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?
Project A costs $5,000 and will generate annual after-tax net cash inflows of $1,800 for five years. What is the NPV using 8% as the discount rate?
If a copy center is considering the purchase of a new copy machine with an initial investment cost of $150,000 and the center expects an annual net cash flow of $20,000 per year, what is the payback period?
Bouvier Restaurant is considering an investment in a grill that costs $140,000, and will produce annual net cash flows of $21,950 for 8 years. The required rate of return is 6%. Compute the net present value of this investment to determine whether Bouvier should invest in the grill.
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?
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)?
Tropical Sweets is considering a project that will cost $70 million and will generate expected cash flows of $30 million per year for 3 years. The cost of capital for this type of project is 10%, and the risk-free rate is 6%. After discussions with the marketing department, you learn that there is a 30% chance of high demand with associated future cash flows of $45 million per year. There is also a 40% chance of average demand with cash flows of $30 million per year as well as a 30% chance of low demand with cash flows of only $15 million per year. What is the expected NPV?
The Rodriguez Company is considering an average-risk investment in a mineral water spring project that has an initial after-tax cost of 170,000. The project will produce 1,000 cases of mineral water per year indefinitely, starting at Year 1. The Year-1 sales price will be 138 per case, and the Year-1 cost per case will be 105. The firm is taxed at a rate of 25%. Both prices and costs are expected to rise after Year 1 at a rate of 6% per year due to inflation. The firm uses only equity, and it has a cost of capital of 15%. Assume that cash flows consist only of after-tax profits because the spring has an indefinite life and will not be depreciated. a. What is the present value of future cash flows? (Hint: The project is a growing perpetuity, so you must use the constant growth formula to find its NPV.) What is the NPV? b. Suppose that the company had forgotten to include future inflation. What would they have incorrectly calculated as the projects NPV?
Assume that an investment of 100,000 produces a net cash flow of 60,000 per year for two years. The discount factor for year 1 is 0.89 and for year 2 is 0.80. The NPV is a. 0 b. 6,800 c. 1,400 d. (4,000)