Question
In: Finance
You are evaluating purchasing the rights to a project that will generate after tax expected cash...
You are evaluating purchasing the rights to a project that will generate after tax expected cash flows of $84k at the end of each of the next five years, plus an additional $1,000k at the end of the fifth year as the final cash flow. You can purchase this project for $586k. If your firm's cost of capital (aka required rate of return) is 13.9%, what is the NPV of this project? Provide your answer in units of $1000, thus, $15000 = 15k and thus you should enter 15 for your answer.
Solutions
Expert Solution
 COST OF THE PROJECT IS $586000 |
||||||||||||
| STATEMENT OF PRESENT VALUE OF INFLOWS | ||||||||||||
| YEARS | INFLOWS | ADDITIONAL INFLOWS | TOTAL INFLOWS | PV FACTOR | PV | |||||||
| (@13.9%) | (TOTAL INFLOWS*PVF) | |||||||||||
| 1 | 84,000.00 | - | 84,000.00 | 0.88 | 73,752.00 | |||||||
| 2 | 84,000.00 | - | 84,000.00 | 0.77 | 64,680.00 | |||||||
| 3 | 84,000.00 | - | 84,000.00 | 0.68 | 57,120.00 | |||||||
| 4 | 84,000.00 | - | 84,000.00 | 0.59 | 49,560.00 | |||||||
| 5 | 84,000.00 | 1,000,000.00 | 1,084,000.00 | 0.52 | 563,680.00 | |||||||
| TOTAL PV OF INFLOWS | 808,792.00 | |||||||||||
| NPV OF THE PROJECT = PV OF CASH INFLOWS - PROJECT COST | ||||||||||||
| NPV = | 808792-586000 | |||||||||||
| NPV = | 222792 | |||||||||||
| ANSWER IN UNITS OF $1000 IS $ 222.792 | ||||||||||||
jeff jeffy answered 1 year agoRelated Solutions
Evaluating a capital budgeting project that costs $40,000 that is expected to generate after-tax cash flows...
Evaluating a capital budgeting project that costs $40,000 that
is expected to generate after-tax cash flows of $15,000 per year
for three years. If the required rate of return is 10 percent
calculate the project’s (a) NPV and (b) IRR. Should the project be
purchased?
This is for a review
Please show steps and rationale for project purchase.
A project requires an investment of 10500 today and it is expected to generate after-tax cash...
A
project requires an investment of 10500 today and it is expected to
generate after-tax cash flows of 2,500 per year for the next 6
years. The company’s weighted average cost of capital is 12.2% per
year. What is the projects net present value?
AS is evaluating a project that is expected to generate the following cash flow stream: Expected...
AS is evaluating a project that is expected to generate the
following cash flow stream:
Expected Cash Flow
Now -R 100,000
End-of-year 1 R 50,000
End-of-year 2 R 50,000
End-of-year 3 R 50,000
Required:
2.1. If the project’s cost of capital is 12 per cent, what is
the present value of the project’s
expected cash flow stream?
2.2. What is the net present value of the project?
Lotus Company is considering an investment project that is expected to generate after tax cash flows...
Lotus Company is considering an investment project that is
expected to generate after tax cash flows $500 for the first year,
$500 for the second year, $800 for the third year, and $800 for the
fourth year. The initial investment is $1400. The firm has a cost
of capital of 15%. (Keep your answer to only two decimals) a. What
is the payback period for the investment ? (example of answer
format: 15.42 years, or 15.42) b. What is the...
11. You are evaluating a proposed project for your company. The project is expected to generate...
11. You are evaluating a proposed project for your company. The
project is expected to generate the following end-of-year cash
flows:
You have been told you should evaluate this project with an
interest rate of 8.00%.
A) What is the NPV?
B) what is the Internal Rate of Return (IRR)
C) Based on the information above: Your group leader has now
told you that the risk of the project was understated before. As a
result, she tells you to recalculate...
11. You are evaluating a proposed project for your company. The project is expected to generate...
11. You are evaluating a proposed project for your company. The
project is expected to generate the following end-of-year cash
flows:
Please solve for below cash flows: 0------- -$3000 1---------
$300 2----------$300 3---------- $600 4---------- $600 5-----------
$800 6----------- $800 7------------$800 8----------- $700
You have been told you should evaluate this project with an
interest rate of 8.00%.
A) What is the NPV?
B) what is the Internal Rate of Return (IRR)
C) Based on the information above: Your group...
You are evaluating a project that will cost $ 527,000, but is expected to produce cash...
You are evaluating a project that will cost $ 527,000, but is
expected to produce cash flows of $ 125 comma 000 per year for 10
years, with the first cash flow in one year. Your cost of capital
is 11 % and your company's preferred payback period is three years
or less.
a. What is the payback period of this project?
b. Should you take the project if you want to increase the value of
the company?
You are evaluating a project that will cost $497,000, but is expected to produce cash flows...
You are evaluating a project that will cost
$497,000,
but is expected to produce cash flows of
$123,000
per year for
10
years, with the first cash flow in one year. Your cost of
capital is
11.2%
and your company's preferred payback period is three years or
less.
a. What is the payback period of this project?
b. Should you take the project if you want to increase the value
of the company?
a. What is the payback period of...
You are evaluating an investment project costing $43,000 initially. The project will provide $3,000 in after-tax...
You are evaluating an investment project costing $43,000
initially. The project will provide $3,000 in after-tax cash flows
in the first year, $4,000 in the second year and $9,000 each year
thereafter for 10 years. The maximum payback period for your
company is 7 years.
Attempt 1/1 for 10 pts.
Part 1
What is the payback period for this project?
1 A project has an initial cost of $ 320,000, expected after-tax cash inflows of $...
1 A project has an initial cost of $ 320,000, expected after-tax
cash inflows of $ 75,000 per year for 8 years, a net salvage value
of $ 30,000, and a cost of capital of 11%.
a) What is the project's net present value?
b) What is the project's profitability index? c) What is the
project's internal rate of return?
d) What is the project's modified internal rate of return
(assume the investment rate to be equal to the cost...
ADVERTISEMENT
ADVERTISEMENT
Latest Questions
- COSC 1436 Programming Assignment : Skill Practice Assignment 3 Your skill practice assignment this week will...
- Waste elimination and process improvement can be applied to virtually any process. Identify a process at...
- Do you think the FASB should continue to require the Statement of Cash Flows or are...
- Here is your chance to analyze an actual co-worker conflict situation and make suggestions on how...
- McKinsey Machines Ltd manufactures a single product A. It has two cost centers namely molding department...
- Threads: Assume a multithreaded application using user level threads mapped to a single kernel level thread...
- Admire is a retail company that sells specialized gardening products. The company is considering opening a...
ADVERTISEMENT