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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 2 years 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...
Exercise Example - Capital Budgeting Project Analysis - Chapter 5 As director of capital budgeting, you...
Exercise Example - Capital Budgeting Project Analysis - Chapter
5
As director of capital budgeting, you are reviewing three
potential investment projects with the following cost and cash flow
projections.
Cash Flow
Project A
Project B
Project C
Investment Cost
($500,000)
($375,000)
($475,000)
Year One Cash Flow
$200,000
$175,000
$250,000
Year Two Cash Flow
$180,000
$50,000
$200,000
Year Three Cash Flow
$100,000
$50,000
$75,000
Year Four Cash Flow
$80,000
$50,000
$30,000
Year Five Cash Flow
$140,000
$300,000
$30,000
Calculate the...
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??
As the capital budgeting director of Union Mills Inc., you are analyzing the replacement of an...
As the capital budgeting director of Union Mills Inc., you are
analyzing the replacement of an automated loom system. The old
system was purchased 5 years ago for $200,000; it is in CCA class
8; it has 5 years of remaining life; however, due to technological
change there is no resale value for the system. The new system has
a price of $300,000, plus $50,000 in installation costs. The new
system falls into the same CCA class, has a 5-year...
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