Question
In: Finance
The capital budgeting director of Global Products, Inc. is evaluating a new project that would increase...
The capital budgeting director of Global Products, Inc. is evaluating a new project that would increase revenues by $60,000 per year. Associated annual related expenses for this project are estimated at $30,000. The projected cost of the project is $50,000. The project anticipates the immediate need of $10,000 in net operating working capital that should be recaptured at the end of the project’s three-year life. The marginal tax rate is 21%. The firm plans to depreciate the project using MACRS. The cost of capital is 10%. Salvage value is estimated to be $7,500. MACRS Year I .3333 Year II .4445 Year III .1481 Year IV .0741
Compute the project’s NPV, IRR, MIRR, Discounted Payback and Payback. Should the firm accept this project?
Solutions
jeff jeffy answered 1 year agoRelated Solutions
Suppose Blue Hamster Manufacturing Inc. is evaluating a proposed capital budgeting project (project Alpha) that will...
Suppose Blue Hamster Manufacturing Inc. is evaluating a proposed
capital budgeting project (project Alpha) that will require an
initial investment of $600,000. The project is expected to generate
the following net cash flows:
Year
Cash Flow
1
$275,000
2
$500,000
3
$425,000
4
$450,000
1. Blue Hamster Manufacturing Inc.’s weighted average cost of
capital is 7%, and project Alpha has the same risk as the firm’s
average project. Based on the cash flows, what is project Alpha’s
net present value...
Mr. Graziano Pellè, the capital budgeting director of Giovinco Corporation(GC), is evaluating a five-year project, which...
Mr. Graziano Pellè, the capital budgeting director of Giovinco
Corporation(GC), is evaluating a five-year project, which will
require an initial investment of $98,000 today. The expected
end-of-year cash flows of the project are as follows: Year 1:
$40,000 Year 2: $29,000 Year 3: $30,000 Year 4: $10,000 Year 5:
$11,000 Weighted average cost of capital of this project is 13%,
and both target payback and discounted payback is 4 years.
a. What is the IRR of this project?
b. What...
Suppose Green Caterpillar Garden Supplies Inc. is evaluating a proposed capital budgeting project (project Alpha) that...
Suppose Green Caterpillar Garden Supplies Inc. is evaluating a
proposed capital budgeting project (project Alpha) that will
require an initial investment of $450,000. The project is expected
to generate the following net cash flows:
Year
Cash Flow
Year 1
$350,000
Year 2
$425,000
Year 3
$500,000
Year 4
$400,000
1. Green Caterpillar Garden Supplies Inc.’s weighted average
cost of capital is 8%, and project Alpha has the same risk as the
firm’s average project. Based on the cash flows, what...
AS A CAPITAL BUDGETING DIRECTOR OF DAYTON CORPORATION, YOU ARE EVALUATING TWO PROJECTS WITH THE FOLLOWING...
AS A CAPITAL BUDGETING DIRECTOR OF DAYTON CORPORATION, YOU ARE
EVALUATING TWO PROJECTS WITH THE FOLLOWING NET CASH FLOWS: COST OF
CAPITAL IS 12%
YEAR
0
1
2
3
4
X
$-2,000
$250
$380
$480
$2,000
Y
$-1,800
$1,600
$600
$200
$420
Calculate Project X's DISCOUNT PAYBACK PERIOD (DPB)
A. 1.57
B. 1.78
C. 3.47
D. 3.89
E. 5.22
As the director of capital budgeting for Bissett Corporation, you are evaluating two mutually exclusive projects...
As the director of capital budgeting for Bissett Corporation,
you are evaluating two mutually exclusive projects (you can only
choose one) with the following cash flows. The discount rate is
15%.
Year
Project X
Project Y
0
- 100,000
- 100,000
1
50,000
10,000
2
40,000
30,000
3
10,000
40,000
4
10,000
30,000
Which project would you choose?
Project X since it has higher IRR
Project Y since it has higher NPV
Project X since it has higher NPV
Neither...
As the director of capital budgeting for EFG Corporation, you are evaluating two mutually exclusive projects...
As the director of capital budgeting for EFG Corporation, you
are evaluating two mutually exclusive projects with the following
net cash flows:
Project E Project F
Year Cash Flow Cash Flow
0 -$100,000 -$100,000
1 50,000 10,000
2 40,000 30,000
3 30,000 40,000
4 10,000 60,000
If EFG’s cost of capital is 15 percent, What is the NPV and
IRR of the better project, respectively??
As the director of capital budgeting for EFG Corporation, you are evaluating two mutually exclusive projects...
As the director of capital budgeting for EFG Corporation, you
are evaluating two mutually exclusive projects with the following
net cash flows:
Project E Project F
Year Cash
Flow Cash Flow
0 -$100,000
-$100,000
1
50,000
10,000
2
40,000
30,000
3
30,000
40,000
4
10,000
60,000
If EFG’s cost of capital is 15 percent, What is the NPV and IRR
of the better project, respectively??
As the director of capital budgeting for EFG Corporation, you are evaluating two mutually exclusive projects...
As the director of capital budgeting for EFG Corporation, you
are evaluating two mutually exclusive projects with the following
net cash flows:
Project E Project F
Year Cash
Flow Cash Flow
0 -$100,000
-$100,000
1
50,000
10,000
2
40,000
30,000
3
30,000
40,000
4
10,000
60,000
If EFG’s cost of capital is 15 percent, What is the NPV and IRR
of the better project, respectively??
You are evaluating a capital budgeting project for your company that is expected to last for...
You are evaluating a capital budgeting project for your company
that is expected to last for six years. The project begins with the
purchase of a $1,200,000 investment in equipment. You are unsure
what method of depreciation to use in your analysis, straight-line
depreciation or the 5-year MACRS accelerated method. Straight-line
depreciation results in the cost of the equipment depreciated
evenly over its life. The 5-year MACRS depreciation rates are 20%,
32%, 19%, 12%, 11%, and 6%. Your company's WACC...
Company X is evaluating a proposed capital budgeting project (project Sigma) that will require an initial...
Company X is evaluating a proposed capital budgeting project
(project Sigma) that will require an initial investment of
$850,000. Company X has been basing capital budgeting decisions on
a project's NPV; however, its new CFO wants to start using the IRR
method for capital budgeting decisions. The CFO says that the IRR
is a better method because returns in percentage form are easier to
understand and compare to required returns. Blue Llama Mining
Company's WACC is 9%, and project Sigma...
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