Question
In: Operations Management
N) Consider investing on at least two new technologies with different initial investments and future cash...
N) Consider investing on at least two new technologies with different initial investments and future cash flows. Assuming a discount rate (interest rate) , calculate the NPV (net present value) for each technology to choose the best one.
Solutions
Expert Solution
Q: Consider investing in at least two new technologies with different initial investments and future cash flows. Assuming a discount rate (interest rate),
calculate the NPV (net present value) for each technology to choose the best one.
Solution: Before Calute NPV, we should understand the concept of NPV(Net Present Value)
Net present Value (NPV)
Net Present value is the discounting cash flow technique of capital Budgeting, it is the difference between the present value of the future value of cash flow with the initial cash flow of the project.
NPV= Present Value of Future Cash Flow- Initial outlay of Project
Present Value of Future Cash Flow=
CF1: Cash Flow of the First year, CF2: Cash Flow of the Second year and CFn: Cash flow for n year etc.
r= Interest Rate
n= Number of year
Important Element of NPV
- Cost of Project(Like Machinery)
- Future Cash flow of Project
- Discounting Rate
Calculation of NPV for Two New Technology: To choose the best One
| Basis | Investment-1 | Investment-2 |
| Name | Technology-A | Technology-B |
| Discount Rate(Interest Rate) | $10,000 | $15,000 |
| Life | 3 years | 3 years |
| Future Cash Flow- Ist Year | $5,000 | $3,000 |
| Future Cash Flow- 2nd Year | $6,000 | $5,000 |
| Future Cash Flow- 3rd Year | $7,000 | $8,000 |
Calculation of Present Value as per Formulae.
| Technology -A Future Cash Flow | |||
| Year No. | Future Value | Interest Rate | Present value |
| 1 | $5,000 | 10% | $4,550 |
| 2 | $6,000 | 10% | $4,980 |
| 3 | $4,000 | 10% | $3,000 |
| Total Present Value of First Investment | $12,530 |
NPV of Technology A= Present Value of Future Cash Flow- Initial outlay of Project
= $12,530 - $10,000
= $2,530(Positive NPV)
| Tecnology -B Future Cash Flow | |||
| Year No. | Future Value | Interest Rate | Present value |
| 1 | $3,000 | 10% | $2,730 |
| 2 | $5,000 | 10% | $4,150 |
| 3 | $8,000 | 10% | $6,000 |
| Total Present Value of First Investment | $12,880 |
NPV of Technology B= Present Value of Future Cash Flow- Initial outlay of Project
= $12,880 - $15,000
= $2,120(Negative NPV)
Decision
After analyzing both NPV of both technology, we understand that Technology A is giving us positive NPV as compare with Technology-B and its the best option for Investment.
We were unable to transcribe this image
We were unable to transcribe this image
keosha answered 4 months agoRelated Solutions
Consider two investments with the following sequences of cash flows: n Project A Project B 0...
Consider two investments with the following sequences of cash
flows:
n Project A Project B
0 -$167,000 -$158,500
1 $38,500 $90,300
2 $47,400 $47,500
3 $59,300 $16,000
4 $29,900 $20,300
5 $57,300 $26,500
a) Compute the IRR for each investment.
b) At MARR = 9%, consider the acceptability of each project.
c) If A and B are mutually exclusive projects, which project would
you select on the basis of the rate of return on incremental
investment?
Consider the following cash flows for the two investments. What are the payback periods on the two investments?
Q 2
Consider the following cash flows for the two investments. What
are the payback periods on the two investments?
Year
Investment A
Investment B
0
-$100
-$100
1
58
31
2
73
58
3
87
180
Question options:
1-
Project A 1.58 years; Project B 2.53 years
2-
Project A 1.46 years; Project B 2.21 years
'''''''''''''''''''''''''''''
Q 3
You are in the lucky situation of having several customers that
want to place large orders with your firm. Unfortunately...
Problem 5 (20pts) Consider two investments with the following cash flows: n Project A Project B...
Problem 5 (20pts)
Consider two investments with the following cash flows:
n
Project A
Project B
0
-100,000
-190,000
1
19,000
29,000
2
17,000
27,000
3
15,000
25,000
4
12,000
22,000
5
22,000
32,000
6
100,000
195,000
Suppose A and B are mutually exclusive, the
MARR is 12%, the rate of return for project A and B is already
given, which is 15% and 13% respectively.
Determine which project should be selected using rate of
return on incremental investment. In...
Consider investments A and B with cash flows given below n A B 0 -30000 -30000...
Consider investments A and B with cash flows given below
n
A
B
0
-30000
-30000
1
2000
11000
2
6000
10000
3
10000
10000
4
24000
8000
5
26000
5000
a) Find the IRR for each investment.
b) Find the incremental IRR, i.e., find IRR for B-A.
c) Plot the present worth of the cash flows of A and of B as a
function of the interest rate, i.e., consister interest rates
5%,10%,15%,…, 40%. Identify the interest rate at...
Sansuit Investments is deciding on future investments for the coming two years and is considering four...
Sansuit Investments is deciding on future investments for the
coming two years and is considering four bonds. The investment
details for the next two years are given in the table below.The net
worth of these four bonds at maturity is $60,000, $40,000, $25,500,
and $18,000, respectively. The firm plans to invest $35,000 and
$62,000 in Year 1 and Year 2, respectively. Develop and solve a
binary integer programming model for maximizing the net worth
Investment Requirements ($)
Year 1
Year...
Sansuit Investments is deciding on future investments for the coming two years and is considering four...
Sansuit Investments is deciding on future investments for the
coming two years and is considering four bonds. The investment
details for the next two years are given in the table below.
Investment Requirements ($)
Year 1
Year 2
Bond A
25,000
30,000
Bond B
15,000
21,000
Bond C
8,000
9,500
Bond D
10,000
7,000
The net worth of these four bonds at maturity is $60,000,
$40,000, $25,500, and $18,000, respectively. The firm plans to
invest $35,000 and $62,000...
Campbell Company is considering investing in two new vans that are expected to generate combined cash...
Campbell Company is considering investing in two new vans that
are expected to generate combined cash inflows of $30,000 per year.
The vans’ combined purchase price is $94,500. The expected life and
salvage value of each are four years and $20,900, respectively.
Campbell has an average cost of capital of 12 percent. (PV of $1
and PVA of $1) (Use appropriate factor(s) from the tables
provided.)
Required
Calculate the net present value of the investment
opportunity.
Jordan Company is considering investing in two new vans that are expected to generate combined cash...
Jordan Company is considering investing in two new vans that are
expected to generate combined cash inflows of $30,500 per year. The
vans’ combined purchase price is $96,000. The expected life and
salvage value of each are five years and $20,500, respectively.
Jordan has an average cost of capital of 16 percent. (PV of $1 and
PVA of $1) (Use appropriate factor(s) from the tables
provided.)
Required
Calculate the net present value of the investment opportunity.
(Negative amount should be...
Stuart Company is considering investing in two new vans that are expected to generate combined cash...
Stuart Company is considering investing in two new vans that are
expected to generate combined cash inflows of $30,500 per year. The
vans’ combined purchase price is $99,000. The expected life and
salvage value of each are five years and $21,200, respectively.
Stuart has an average cost of capital of 14 percent. (PV of $1 and
PVA of $1) (Use appropriate factor(s) from the tables
provided.)
Required
Calculate the net present value of the investment opportunity.
(Negative amount should be...
Company Cash from Operations Cash from Investing Cash from Financing Microsoft &n
Company
Cash from Operations Cash from
Investing Cash from
Financing
Microsoft
$7,951
$
(6,176)
$ 5,541
Ebay
9,969
3,579
(9,694)
TJ
MAX
(2,498)
438
396
Each of these companies shows a different cash flow pattern.
Explain what these patterns might indicate about each company.
ADVERTISEMENT
ADVERTISEMENT
Latest Questions
- How many grams of Na2CO3 should be mixed with 5.00 g of NaHCO3 to produce 100...
- Given the following information for a monopolistic competitor: Demand: P = 78 – 5(Q) Marginal revenue:...
- Why does the auto industry prefer uniform (national) standards for automobile emissions as opposed to regionally...
- GOAL Apply the more general definition of torque. PROBLEM (a) A man applies a force of...
- a) If 8.00 hp are required to drive a 1800-kg automobile at 54.0 km/h on a...
- 23- Celsius Corp. is conducting a capital budgeting analysis to decide whether to invest in a...
- Using energy level diagrams, predict the relative stability of a Br2 molecule as well as the...
ADVERTISEMENT