Question
In: Finance
Calculate the net present value (NPV) of the investment using your answers from Q2-Q4 and Q6....
Calculate the net present value (NPV) of the investment using your answers from Q2-Q4 and Q6.
I need to also have the formula in my excel answer so I will need to be walked through the formula to use with which numbers to plug in.
| Purchase Price | -$449,900.00 |
| Initial Cost | -$11,468.00 |
| Investment in NWC | -$3,220.00 |
| After-Tax SV | |
| Initial Outlay | -$464,588.00 |
| Project Life | 10 | Tax Rate | |
|
Rate for Single Earning $207,350 a year |
|||
| Initial Outlay from Q2 | -$464,588.00 | 35.00% | |
| Annual Operating Cash Flow |
(Sales-Cost) x (1-tax rate) + (depreciation) x (tax rate) |
||
| Annual Rent | $19,320.00 | ||
| Expenses | $16,321.15 | ||
| Depreciation | $16,360.00 | ||
| Taxes Rate | 0.35 | ||
| Annual Operating Cash Flow (Year 1 - 10) | $7,675.25 | ||
| Question 4 |
(0.5 point). Calculate the terminal cash flow in yr 10 your answers from Q1. |
||
| After Tax Savage Value | SV - t*(SV - BV) | ||
| Savage Value | $494,900.00 | ||
| Tax Rate | 35.00% | ||
| Accumulated Depreciation | |||
| Depreciation Expense | $16,360.00 | ||
| # of Years of Project | 10 | ||
| Accumulated Depreciation Total | $163,600.00 | ||
| BV | |||
| Depreciable Asset (Purchase Price+Inital Cost) | -$461,368.00 | ||
| Accumulated Depreciation | $163,600.00 | ||
| BV Total | -$624,968.00 | ||
| After Tax Savage Value | $102,946.20 | ||
| Terminal Cash Flow | |||
| Recovery of NMW from Q2 | $3,220.00 | ||
| After-Tax Savage Value | $102,946.20 | ||
| Terminal CF | $106,166.20 | ||
| Year | Amount | ||
| 0 | -$464,588 | ||
| 1 | $7,675.25 | ||
| 2 | $7,675.25 | ||
| 3 | $7,675.25 | ||
| 4 | $7,675.25 | ||
| 5 | $7,675.25 | ||
| 6 | $7,675.25 | ||
| 7 | $7,675.25 | ||
| 8 | $7,675.25 | ||
| 9 | $7,675.25 | ||
| 10 | $113,841.45 |
| WACC = |
Wd Rd (1-T) + We Re |
||
| Wd = |
Weight on debt securities |
||
| Rd = |
Cost of Debt (=borrowing rate) |
||
| T |
Corporate Tax Rate |
||
| We = |
Weight on equity securities |
||
| Re = |
Cost of Equity (=expected Return) |
||
| Wd = | 70% | ||
| Rd = | 3.82% | ||
| T | 35% | ||
| We = | 30% | ||
| Re = | 7% | ||
| WACC |
Solutions
Expert Solution
WACC = Wd *Rd(1-t) + We * Re
= 0.7 * 3.82 (1-0.35) + 0.3 * 7
= 3.8381%
Computation of NPV
| Year |
Cash outflow (A) |
Annual operating cash
flow (B) |
Terminal cash flow (C) |
Total cash flows (D)=(A)+(B)+(C) |
PVF @ 3.8381% (E) |
Present value of cash
flows (D)*(E) |
| 0 | (464,588) | - | - | (464,588.00) | 1 | (464,588.00) |
| 1 | - | 7,675.25 | - | 7,675.25 | 0.9630 | 7,391.55 |
| 2 | - | 7,675.25 | - | 7,675.25 | 0.9274 | 7,118.35 |
| 3 | - | 7,675.25 | - | 7,675.25 | 0.8932 | 6,855.23 |
| 4 | - | 7,675.25 | - | 7,675.25 | 0.8601 | 6,601.85 |
| 5 | - | 7,675.25 | - | 7,675.25 | 0.8284 | 6,357.83 |
| 6 | - | 7,675.25 | - | 7,675.25 | 0.7977 | 6,122.83 |
| 7 | 7,675.25 | - | 7,675.25 | 0.7683 | 5,896.51 | |
| 8 | 7,675.25 | - | 7,675.25 | 0.7399 | 5,678.57 | |
| 9 | 7,675.25 | - | 7,675.25 | 0.7125 | 5,468.67 | |
| 10 | 7,675.25 | 106,166.2 | 113,841.45 | 0.6862 | 78,114.76 | |
| Net present value | (328,981.85) |
Hence, net present value of the investment is -$328,981.85
jeff jeffy answered 2 years agoRelated Solutions
Using a discount rate of 14 percent, calculate the net present value (NPV) of the proposed investment.
Beacon Company is considering automating its production facility. The initial investment in automation would be $9.40 million, and the equipment has a useful life of 8 years with a residual value of $1,000,000. The company will use straight-line depreciation. Beacon could expect a production increase of 38,000 units per year and a reduction of 20 percent in the labor cost per unit.
Current (no automation)
Proposed (automation)
77,000 units
115,000 units
Production and sales volume
Per Unit
Total...
(a) Calculate the net present value (NPV) of a project which requires an initial investment of...
(a) Calculate the net present value (NPV) of a project which
requires an initial investment of $243,000 and it is expected to
generate a cash inflow of $58,000 each month for 12 months. Assume
that the salvage value of the project is zero. The target rate of
return is 12 % per annum.
(b) An initial investment of $8,720 thousand (i.e. × 1,000) on
plant and machinery is expected to generate cash inflows of $3,411
thousand, $4,070 thousand, $5,824 thousand...
Calculate the net present value (NPV) for a 1515-year project with an initial investment of $45...
Calculate the net present value
(NPV)
for a
1515-year
project with an initial investment of
$45 comma 00045,000
and a cash inflow of
$7 comma 0007,000
per year. Assume that the firm has an opportunity cost of
1515%.
Comment on the acceptability of the project.
The project's net present value is
$nothing.
(Round to the nearest cent.)
The NPV (net present value) of Plan Alpha is $ (130,539) The NPV (net present value)...
The
NPV (net present value) of Plan Alpha is $
(130,539)
The
NPV (net present value) of Plan Beta is $
233,001
The
IRR (internal rate of return) of Plan Alpha is $
19.36
%.
The
IRR (internal rate of return) of Plan Beta is $
21.25
%.
Which plan, if
any, should
the company pursue?
Based on the results above, the company
should pursue
Plan Beta
because
the NPV is
positive
and
the IRR is
greater than
the
company's...
Net present value (NPV)The net present value (NPV) rule is considered one of the most...
Net present value (NPV)The net present value (NPV) rule is considered one of the most
common and preferred criteria that generally lead to good
investment decisions.Consider this case:Suppose Pheasant Pharmaceuticals is evaluating a proposed
capital budgeting project (project Beta) that will require an
initial investment of $2,225,000. The project is expected to
generate the following net cash flows:YearCash FlowYear 1$275,000Year 2$475,000Year 3$450,000Year 4$450,000Pheasant Pharmaceuticals’s weighted average cost of capital is
8%, and project Beta has the same risk as the...
Net present value Using a cost of capital of 11%, calculate the net present value for...
Net present value Using a cost of capital of
11%, calculate the net present value for the project
shown in the following table and indicate whether it is
acceptable,
Initial investment
(CF
0CF0)
negative 1 comma 143 comma 000−1,143,000
Year
(t)
Cash inflows
(CF Subscript
tCFt)
1
$81,000
2
$138,000
3
$193,000
4
$258,000
5
$311,000
6
$377,000
7
$270,000
8
$98,000
9
$45,000
10
$29,000
The net present value (NPV) of the project is _____$ (Round
to the nearest...
Calculate the net present value (NPV) for both projects usingthe crossover rate as your discount...
Use the following information to answer the next three questions. Consider the cash flows from two mutually exclusive projects: Cash FlowYearProject AProject B0-$420,000-$420,0001$140,000$400,0002$230,000$110,0003$331,000$140,000The appropriate discount rate is 8.5%.Calculate the net present value (NPV) for both projects using
the crossover rate as your discount rate. Round both NPVs to the
nearest dollar.
1 A. What is the net present value (NPV) of an investment of $1000 that returns...
1
A. What is the net present value (NPV) of an investment of $1000
that returns $1500 in three years, using a discount rate of
10%?
B. What is the NPV of a $5000 investment that is worth $10,000
at the end of five years, if we wanted to earn 15% on the
investment?Did we earn our required 15%? How can you
tell?
C. What is the present value of a stock that pays a $1 dividend
in perpetuity, if you...
1. Net present value (NPV) Evaluating cash flows with the NPV method The net present value...
1. Net present value (NPV)
Evaluating cash flows with the NPV method
The net present value (NPV) rule is considered one of the most
common and preferred criteria that generally lead to good
investment decisions.
Consider this case:
Suppose Cold Goose Metal Works 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
$325,000
Year 2...
1. Net present value (NPV) Evaluating cash flows with the NPV method The net present value...
1. Net present value (NPV)
Evaluating cash flows with the NPV method
The net present value (NPV) rule is considered one of the most
common and preferred criteria that generally lead to good
investment decisions.
Consider this case:
Suppose Happy Dog Soap Company is evaluating a proposed capital
budgeting project (project Beta) that will require an initial
investment of $3,000,000. The project is expected to generate the
following net cash flows:
Year
Cash Flow
Year 1
$300,000
Year 2
$475,000...
ADVERTISEMENT
ADVERTISEMENT
Latest Questions
- Define “culture.” Software is defined by the Merriam-Webster Dictionary as "the programs that run on a...
- In humans, hypotrichosis (sparse body hair) is a rare autosomal recessive condition. Let h = hypotrichosis...
- Increase all of the listing prices by 5% for all listings under $500,000 and 10% for...
- Samsung Industry that requires you to act as a change agent to form an organizational change...
- Use fork() Create a program that reads characters from an input file. Use fork to create...
- A pension fund manager is considering three mutual funds. The first is a stock fund, the...
- Compute the cost of not taking the following cash discounts. (Use a 360-day year. Do not...
ADVERTISEMENT